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Arlington Clothing, Inc., shows the following information for its two divisions for year 1.
| | Lake Region | Coastal Region |
| Sales revenue | $ | 4,060,000 | | $ | 13,000,000 | |
| Cost of sales | | 2,695,000 | | | 6,490,000 | |
| Allocated corporate overhead | | 243,600 | | | 780,000 | |
| Other general and administration | | 546,900 | | | 3,740,000 | |
| |
The results for year 2 have just been posted.
| | Lake Region | Coastal Region |
| Sales revenue | $ | 4,060,000 | | $ | 9,680,000 | |
| Cost of sales | | 2,695,000 | | | 4,870,000 | |
| Allocated corporate overhead | | 304,500 | | | 726,000 | |
| Other general and administration | | 541,000 | | | 3,740,000 | |
| |
Required:
a. Compute divisional operating income for the two divisions for year 2.
| |
| | | | Lake Region | Coastal Region | | Operating income | | | |
b-1. What are the gross margin and operating margin percentages for year 2 for both divisions?
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| | | | Lake Region | Coastal Region | | Gross margin percentage | | % | | % | | Operating margin | | % | | % | |
b-2. How well have these divisions performed?
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| | | The reported divisional income for the Lake Region went down because sales fell in Coastal Region.checkbox unchecked1 of 6 | | Corporate overhead is allocated on the basis of relative revenues.checkbox unchecked2 of 6 | | Corporate overhead is allocated on the basis of absolute revenues.checkbox unchecked3 of 6 | | The performance of the Lake Region is affected by the results in the Coastal Region.checkbox unchecked4 of 6 | | The operating margin is greater in Lake Region.checkbox unchecked5 of 6 | | The gross margin percentage is higher in Coastal Region.checkbox unchecked6 of 6 | |
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