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AICPA CPA-Financial Exam - Topic 3 Question 14 Discussion
Topic #: 3
Hyde Corp. has three manufacturing divisions, each of which has been determined to be a reportable segment. In 1989, Clay division had sales of $3,000,000, which was 25% of Hyde's total sales, and had operating costs of $1,900,000, as reported to the CFO. In 1989, Hyde incurred operating costs of $500,000 that were not directly traceable to any of the divisions. In addition, Hyde incurred corporate interest expense of $300,000 in 1989. In reporting segment information, what amount should be shown as Clay's operating profit for 1989?
Choice 'd' is correct. $1,100,000 operating profit for clay.
Rule: Operating profit by segments is based on the measure of profit reported to the 'chief operating decision maker.'
Allocations for general operating costs and interest, etc., should not be made solely for purposes of segment disclosures.
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