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E14-2

Statham Construction Company


Divisional Income Statement
For the year ended November 30, 20Y3
in USD
Net sales
Cost of goods sold
Gross profit
Administrative expenses
Income before service department charge

Service department charge


Profit from operation
E14-3
a.
b.
c.
d.
e.
f.
E14-8
a.

Residential Division
2,300,000
1,450,000
850,000
175,000

Industrial Division
5,750,000
3,450,000
2,300,000
480,000

675,000
100,000
575,000

1,820,000
200,000
1,620,000

volume of invoices
number of PO
pages of copy stuff
volume of data processed
by case
time for communication

The income from operations for the 2 divisions do not accurately measure performance.
The income from operations is after service charge, however the service charge is not based on activities but based on department revenue

Accouting for executives

Chapter 14

Panda Airlines Inc.


Divisional Income Statements
For the Year Ended April 30, 20Y9

b.

in USD
Revenues
Operating expenses
Income from operations before
service dept. charges
Less service department charges:
Training
Flight scheduling
Reservations
Income from operations

Passenger Division
7,500,000
4,500,000

Cargo Division
5,000,000
2,700,000

3,000,000

2,300,000

375,000
280,000
255,000
910,000
2,090,000

125,000
70,000
195,000
2,105,000

On-Demand Sports Co.


Divisional Income Statements
For the Year Ended November 30, 20Y1

E14-9

in USD
Sales
Cost of goods sold
Gross profit
Sales expense
Admin expense
Income from operations before
service dept. charges
Less service department charges:
Advertising expense
Transportation expense
AR collection expense
Warehouse expense
Income from operation

Accouting for executives

AS Division
18,500,000
10,700,000

TS Division
30,600,000
19,200,000

7,800,000

11,400,000

1,500,000
1,250,000

2,100,000
1,450,000

5,050,000

7,850,000

1,200,000
259,000
288,000
480,000
2,227,000
2,823,000

1,800,000
395,900
112,500
320,000
2,628,400
5,221,600

Chapter 14

Service charge allocation:


AS Division
1,200,000

TS division
1,800,000

Total
3,000,000

Transportation:
charge rate
volume of bills
Transportation expense

18.5
14,000
259,000

18.5
21,400
395,900

654,900

AR collection:
charge rate
volume of invoices
AR collection expense

9
32,000
288,000

9
12,500
112,500

400,500

Warehouse:
allocation rate
Floor space
Warehouse expense

4
120,000
480,000

4
80,000
320,000

200,000
800,000

Advertising expense

E14-10
a.

b.
E14-11
a.

b.

Income from Operation Invested Assets Return on Investment


Sporting goods division
540,000
3,000,000
18.0%
Health Club Division
418,000
2,200,000
19.0%
School Division
455,000
3,500,000
13.0%
It's easy to see that the Health Club Division is most profitable per dollar invested.

Income from Operation Invested Assets


Sporting goods division
540,000
3,000,000
Health Club Division
418,000
2,200,000
School Division
455,000
3,500,000
Sporting goods division has the most residual income.

Accouting for executives

Minimum acceptable income from investment

360,000
264,000
420,000

Chapter 14

Residual Income
180,000
154,000
35,000

E14-14
a.

b.

Income from operations


Revenue
Investment Assets Profit margin Investment Turnover Return on investment
Media Networks
6,619
19,436
28,660
34.1%
0.68
23.2%
Parks and Resorts
1,902
12,920
20,951
14.7%
0.62
9.1%
Studio Entertainment
722
5,825
12,928
12.4%
0.45
5.6%
Consumer Products
937
3,252
5,016
28.8%
0.65
18.7%
profit margin: Media Networks > Consumer Products > Parks and Resorts > Studio Entertainment
Investment Turnover: Media Networks > Consumer products >Parks and Resorts > Studio Entertainment
Return on Investment: Media Networks > Consumer products >Parks and Resorts > Studio Entertainment
Basically, Media Networks and Customer products are the most advantageous sectors,
Parks and Resorts and Studio Entertainment are the less profitable sectors.

E14-15
Invested assets

Income from operations Return on Investment Minimum rate of return

2,500,000
6,000,000
7,500,000
14,000,000
a
b
c
d
e
f

Accouting for executives

400,000
d
g
2,380,000
16.0%
300,000
100,000
840,000
11.2%
10.0%

a
e
20%
j
g
h
i
j
k
l

12%
f
h
13%
1,500,000
12.0%
600,000
17.0%
1,820,000
560,000

Chapter 14

Minimum acceptable income from operations

b
600,000
900,000
k

Residual Income
c
240,000
I
l

0.231
0.091
0.056
0.187