Pale Company has four manufacturing divisions, each of which has been determined to be a reportable segment.Common operating costs are appropriately allocated on the basis of each division's sales in relation to Pale's aggregate sales.Pale's Delta division accounted for 40% of Pale's total sales in 2014.For the year ended December 31, 2014, Delta had sales of $5,000,000 and traceable costs of $3,600,000.In 2014, Pale incurred operating costs of $350,000 that were not directly traceable to any of the divisions.In addition, Pale incurred interest expense of $360,000 in 2014.In reporting supplementary segment information, how much should be shown as Delta's operating profit for 2014?
A)$1,400,000
B)$1,256,000
C)$1,260,000
D)$1,116,000

Question

Quizplus · Accepted Answer

To determine Delta's operating profit, we need to calculate its operating costs first. Using the sales ratio, we can allocate the common operating costs to Delta:
Common operating costs = $350,000
Delta's share = 40%
Delta's allocated common costs = $140,000
Total traceable costs = $3,600,000
Total costs (traceable and allocated) = $3,740,000
Delta's sales = $5,000,000
Delta's total costs = $3,740,000
Delta's operating profit = $1,260,000 (Option C)

Pale Company Has Four Manufacturing Divisions, Each of Which Has