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 2017. For the year ended December 31, 2017, Delta had sales of $5,000,000 and traceable costs of $3,600,000. In 2017, 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 2017. In reporting supplementary segment information, how much should be shown as Delta's operating profit for 2017?
A) $1,400,000
B) $1,256,000
C) $1,260,000
D) $1,116,000

Question

Quizplus · Accepted Answer

Delta's operating profit is calculated as its sales minus traceable costs and allocated common operating costs. Delta's sales are $5,000,000, and traceable costs are $3,600,000. The common operating costs allocated to Delta are 40% of $350,000, which is $140,000. Therefore, Delta's operating profit is $5,000,000 - $3,600,000 - $140,000 = $1,260,000. Interest expense is not included in operating profit.

Pale Company Has Four Manufacturing Divisions, Each of Which Has