Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 20

Compute Divisional Income

Refer to Exercise 14-19. The results for year 2 have just been posted:

	Eastern	Western
Revenue	$1,200,000	$2,800,000
Cost of sales	769,500	1,400,000
Allocated corporate overhead	90,000	210,000
Other general and administration.	158,500	1,100,000

Required

Compute divisional operating income for the two divisions. How well have these divisions performed?

Step 1 of 4

Operating Income: Income or profit derived from primary business activities. It is the balance amount of revenues after deducting cost of goods sold, operating expenses and depreciation. It does not include interest expenses, taxes, nonrecurring amounts and investment in other Companies. Hence, it is also called as earnings before interest and taxes (EBIT). It can be used as performance measure with respect to firms and divisions.