Fallow Corporation has two separate profit centers. The following information is available for the most recent year: West Division East Division Sales (net) $ 250,000 $ 400,000 Salary expense 31,000 45,000 Cost of goods sold 95,000 195,000 The West Division occupies 6,250 square feet in the plant. The East Division occupies 3,750 square feet. Rent, which was $ 50,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division

The West Division of Fallow Corporation has net sales of $250,000. To compute its operating income, we need to consider all expenses, including both direct and indirect expenses.

Direct expenses for the West Division include salary expense and cost of goods sold, which are $31,000 and $95,000, respectively.

To allocate the indirect expense (rent) based on square footage, we first need to calculate the proportion of square footage occupied by each division. The West Division occupies 6,250 square feet, while the East Division occupies 3,750 square feet, making a total of 10,000 square feet. The proportion occupied by the West Division is 6,250 / 10,000, which equals 0.625.

Now, we can allocate the rent expense of $50,000 based on this proportion. The West Division's share of the rent expense is 0.625 * $50,000, which equals $31,250.

Finally, to compute the operating income for the West Division, we subtract the direct and allocated indirect expenses from the net sales:

Operating Income = Net Sales - (Salary Expense + Cost of Goods Sold + Allocated Rent Expense)
Operating Income = $250,000 - ($31,000 + $95,000 + $31,250)
Operating Income = $250,000 - $157,250
Operating Income = $92,750

Therefore, the operating income for the West Division is $92,750.

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