Required information Loretto Outfitters is a retail chain of stores organized into two divisions (East and West) and a corporate headquarters. Corporate planners have prepared financial operating plans (budgets) for the two divisions for the upcoming year (year 2). Selected information from the plans is as follows: Revenues ($000) Number of stores Direct costs ($000) Division margin ($000) East 22 $ 44,000 22,000 $ 22,000 West 32 $ 68,000 32,000 $ 36,000 Based on information from various corporate staff, the planning team estimates that corporate overhead costs are expected to be $22 million in year 1. Of the $22 million, $7.6 million is fixed and the remainder is variable. With respect to the variable overhead, $5.8 million is variable with respect to revenue and the remainder is variable with respect to the number of stores. The two division managers are evaluated and compensated in part on division operating profit (including any allocated corporate costs) relative to the budget. Corporate overhead at Loretto is allocated based on relative revenues to determine both budgeted and actual operating profit. Required: a. What are the budgeted operating profits in each division for year 1 after the corporate costs are allocated? Note: Do not round intermediate calculations. Enter your answers in thousands of dollars. East West Total Revenues $ 0 Direct costs $ 0 Operating profit before allocations $ 0 $ 0 $ 0 Corporate costs $ 0 Operating profit $ 0 $ 0 $ 0
Required information Loretto Outfitters is a retail chain of stores organized into two divisions (East and West) and a corporate headquarters. Corporate planners have prepared financial operating plans (budgets) for the two divisions for the upcoming year (year 2). Selected information from the plans is as follows: Revenues ($000) Number of stores Direct costs ($000) Division margin ($000) East 22 $ 44,000 22,000 $ 22,000 West 32 $ 68,000 32,000 $ 36,000 Based on information from various corporate staff, the planning team estimates that corporate overhead costs are expected to be $22 million in year 1. Of the $22 million, $7.6 million is fixed and the remainder is variable. With respect to the variable overhead, $5.8 million is variable with respect to revenue and the remainder is variable with respect to the number of stores. The two division managers are evaluated and compensated in part on division operating profit (including any allocated corporate costs) relative to the budget. Corporate overhead at Loretto is allocated based on relative revenues to determine both budgeted and actual operating profit. Required: a. What are the budgeted operating profits in each division for year 1 after the corporate costs are allocated? Note: Do not round intermediate calculations. Enter your answers in thousands of dollars. East West Total Revenues $ 0 Direct costs $ 0 Operating profit before allocations $ 0 $ 0 $ 0 Corporate costs $ 0 Operating profit $ 0 $ 0 $ 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Required information
Loretto Outfitters is a retail chain of stores organized into two divisions (East and West) and a corporate headquarters.
Corporate planners have prepared financial operating plans (budgets) for the two divisions for the upcoming year (year 2).
Selected information from the plans is as follows:
Revenues ($000)
Number of stores
Direct costs ($000)
Division margin ($000)
East
22
$ 44,000
22,000
$ 22,000
West
32
$ 68,000
32,000
$ 36,000
Based on information from various corporate staff, the planning team estimates that corporate overhead costs are
expected to be $22 million in year 1. Of the $22 million, $7.6 million is fixed and the remainder is variable. With respect to
the variable overhead, $5.8 million is variable with respect to revenue and the remainder is variable with respect to the
number of stores. The two division managers are evaluated and compensated in part on division operating profit
(including any allocated corporate costs) relative to the budget. Corporate overhead at Loretto is allocated based on
relative revenues to determine both budgeted and actual operating profit.
Required:
a. What are the budgeted operating profits in each division for year 1 after the corporate costs are allocated?
Note: Do not round intermediate calculations. Enter your answers in thousands of dollars.
East
West
Total
Revenues
$
0
Direct costs
$
0
Operating profit before allocations
$
0
$
0
$
0
Corporate costs
$
0
Operating profit
$
0
$
0
$
0
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