This textbook is available at
Chapter 25, End of Chapter, Self-Study Demonstration Problem, Exercise 1

# Kristen Owen and Stephen Kaplan are partners who own OK Cycling. They sell outdoor bicycles and exercise bicycles. They keep accounts and prepare reports on a departmental basis. Direct expenses are assigned and indirect expenses are allocated to departments by various means. Selected operating information for the year ended December 31, 20--, is as follows: Prepare an income statement showing departmental operating income.

### Explanation

The company prepared an income statement showing the departmental operating income of their two departments.

The net sales less cost of goods sold and operating expenses is the operating income.

Departments A and B have net sales for \$1,612,500.00 and \$1,150,600.00, cost of goods sold for \$935,420.00 and \$791,800.00 and total operating expenses for \$573,240.00 and \$294,930.00, respectively.  Hence, operating income for Department A is \$103,840.00 while for Department B is \$63,870.00 or a total of \$167,710.00.