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Prepare an income statement showing departmental direct operating margin and total operating income for Walters and Jennings Sportswear, which sells athletic footwear across three departments: running shoes, walking shoes, and specialty shoes. Using the provided sales and cost of goods sold data for the year ended December 31, 20--, calculate the gross profit for each department and the overall business.

Paper For Above instruction

Walters and Jennings Sportswear operates as a departmentalized business selling athletic footwear with three distinct categories: running shoes, walking shoes, and specialty shoes. During its initial year of operation, the company recorded revenue and cost data as follows:

  • Running Shoes: Sales of $36,000 and cost of goods sold (COGS) of $23,400.
  • Walking Shoes: Sales of $42,000 and COGS of $23,520.
  • Specialty Shoes: Sales of $12,000 and COGS of $7,600.

To evaluate the profitability of each department and the total business, we will prepare the gross profit section of the departmental income statement. The gross profit is calculated as the difference between sales and COGS for each department, and the overall gross profit is the sum of departmental gross profits.

Calculations of Gross Profit per Department

Running Shoes Department:

Gross Profit = Sales - COGS = $36,000 - $23,400 = $12,600.

Walking Shoes Department:

Gross Profit = $42,000 - $23,520 = $18,480.

Specialty Shoes Department:

Gross Profit = $12,000 - $7,600 = $4,400.

Next, we combine these figures to determine the total gross profit for Walters and Jennings Sportswear:

Total Gross Profit:

$12,600 + $18,480 + $4,400 = $35,480.

This figure represents the company's gross profit before deducting operating expenses. The gross profit margins for each department are useful indicators of departmental efficiency and profitability. Calculating the gross profit percentage for each provides further insight:

Running Shoes Margin:

(12,600 ÷ 36,000) × 100 ≈ 35%.

Walking Shoes Margin:

(18,480 ÷ 42,000) × 100 ≈ 44%.

Specialty Shoes Margin:

(4,400 ÷ 12,000) × 100 ≈ 36.67%.

Overall, the gross profit margin for Walters and Jennings Sportswear is:

(35,480 ÷ 90,000) × 100 ≈ 39.42%, where total sales are $36,000 + $42,000 + $12,000 = $90,000.

These gross margins indicate healthy departmental profitability, with walking shoes leading in efficiency, followed by specialty shoes, and then running shoes, which may suggest opportunities for cost reduction or pricing strategies to improve margins further.

Conclusion

By analyzing departmental gross profits and margins, Walters and Jennings Sportswear can make informed decisions about inventory, marketing, and operational focus, ultimately fostering more profitable departmental and overall business performance. This financial snapshot provides a foundation for comprehensive profitability analysis and strategic planning.

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