Question

Atlanta Tool Co. is a supplier that assembles purchased parts into components for three distinct markets-scooter parts, lawn mower parts, and hand tool parts. Following is the statement of operating income for the most recent period: E (Click the icon to view the statement of operating income.) Atlanta Tool uses a traditional cost accounting system. Operating data used in the cost accounting system are as follows: Data Table x (Click the icon to view the operating data.) Requirement 1. You have been asked to determine operating income (loss) for each product line. Scooter Atlanta Tool: Statement of Operating Income Total Total Parts Sales $ 1,728,300 Sales $ 1,728,300 Cost of goods sold: Cost of goods sold Direct material 450,000 Direct material $ 450,000 45,000 Indirect production (allocated based on Indirect production machine hours) 45,000 495,000 Total cost of goods sold 495,000 $ 1,233,300 $ 1,233,300 Gross profit Selling and administrative expenses: Commissions Gross profit Selling and administrative expenses Commissions 109,900 109,900 210,000 Distribution to warehouses (allocated based on Distribution to warehouses 210,000 319,900 weight in kilograms) 319,900 Income before unallocated expenses 913,400 Total selling and administrative expenses Contribution to corporate expenses and profit Corporate expenses (unallocated): 913,400 Unallocated expenses Corporate salaries 7,000 11,000 Other general expenses 18,000 Enter any number in the edit fields and then click Check Answer. $ 895,400

Answer 1

1. Determination of operating income (loss) for each product line:

Given information

Purchase (Direct material) costs are allocated directly to components as given.

Indirect production costs are allocated to components based on machine hours.

Commissions cost are allocated to components on the basis of units sold.

Distribution to warehouses costs are allocated to components based on weight in kilograms.

	Total	Scooter Parts	Lawn Mower Parts	Hand Tool Parts
A. Sales (in units)	98,000	13,000	27,000	58,000
B. Selling Price per unit		$75	$16.30	$5.40
C. Sales (in dollars) (A x B)	$1,728,300	$975,000	$440,100	$313,200
D. Machine Hours	11,250	8,200	1,750	1,300
E. Indirect Production Costs	$45,000	$32,800 ($45,000/11,250) x 8,200	$7,000 ($45,000/11,250) x 1,750	$5,200 ($45,000/11,250) x 1,300
F. Weight of parts shipped to distributed (Kilograms)	600,000	40,000	390,000	170,000
G. Distribution to warehouses cost	$210,000	$14,000 ($210,000/600,000) x 40,000	$136,500 ($210,000/600,000) x 390,000	$59,500 ($210,000/600,000) x 170,000
H. Sales commission per unit		$5.20	$0.60	$0.45
I. Sales commission allocated (A x H)	$109,900	$67,600	$16,200	$26,100

Operating income (loss) for each component will be as follows:

	Total	Scooter Parts	Lawn Mower Parts	Hand Tool Parts
Sales Revenue	$1,728,300	$975,000	$440,100	$313,200
Less: Cost of Goods Sold:
Direct Material	$450,000	$205,000	$145,000	$100,000
Indirect Production (see note E above)	$45,000	$32,800	$7,000	$5,200
Total Cost of Goods Sold	$495,000	$237,800	$152,000	$105,200
Gross Profit	$1,233,300	$737,200	$288,100	$208,000
Less: Selling and administrative expenses:
Commissions (See note I above)	$109,900	$67,600	$16,200	$26,100
Distribution to warehouses (see note G above)	$210,000	$14,000	$136,500	$59,500
Total Selling and administrative expenses	$319,900	$81,600	$152,700	$85,600
Operating Profit	$913,400	$655,600	$135,400	$122,400