Allocated costs and expenses

Case Scenario:

Watson Company pays a bonus to any of its five division managers who increase their percentage of income to sales over that of the year before. The manager of Division A is displeased because of the results of operations of the line for the current year. The division showed a decrease in net income percentage, as follows:


Current Year

Last Year

Net sales





Cost of goods sold





Division fixed costs





Allocated costs





Variable costs










Gross margin





Selling and administrative expense





Division fixed expenses





Allocated expenses





Variable expenses










The items of allocated costs and expenses represent general cots and expenses of the company that were allocated to the divisions.


Q1. Prepare a statement that shows more clearly the performance of Division A.

Q2. Comment on the method used by the company to calculate bonuses.

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Accounting Basics: Allocated costs and expenses
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