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    Watson Company's Net Income Percentage

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    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 $252,000 $216,000
    Cost of goods sold
    Division fixed costs $29,000 $29,000
    Allocated costs $40,000 $19,000
    Variable costs $72,000 $141,000 $72,000 $120,000
    Gross margin $111,000 $96,000

    Selling and administrative expense
    Division fixed expenses $25,000 $22,000
    Allocated expenses $45,000 $37,000
    Variable expenses $22,000 $92,000 $19,000 $78,000
    Income $19,000 $18,000

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

    Required:

    a. Prepare a statement that shows more clearly the performance of Division A.
    b. Comment on the method used by the company to calculate bonuses.

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    https://brainmass.com/business/accounting/watson-company-net-income-percentage-147625

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    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 $252,000 $216,000
    Cost of goods sold
    Division fixed costs $29,000 $29,000
    Allocated costs $40,000 $19,000
    Variable costs $72,000 $141,000 $72,000 $120,000
    $111,000 $96,000
    Gross margin
    Selling and administrative expense
    Division fixed ...

    Solution Summary

    This solution prepares a statement that shows the performance of division A and calculates the controllable margin. It also comments on the method of the company to calculate bonuses and suggests improvements.

    $2.19

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