7. Responsibility Accounting: a. What is a cost center? Give an example of a cost center b. What is a Profit center? Give an example of a profit center c. What is an investment center? Give an example of an investment center
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- Identify the type of responsibility center (revenue center, cost center, profit center, or investment center) for each of the following situations. A. the legal department for Avon Manufacturing B. the Macys store in Mansfield, Ohio C. the food and beverage division of the Best Western D. the marketing department of the Hershey Company E. the Walmart #5030 on Central Avenue in Toledo, Ohio F. Apples Braeburn Capital Inc., where most of Apples billions of dollars are invested G. Zappos department store H. the mens clothing department in the Walmart #5030 in Toledo, OhioAs manager of department B in MarIeys Manufacturing, based on the costs you identified in the previous exercise for further research, how does this impact the financial performance of your department, and what might be some questions you want to ask or solutions you might propose to Marleys management?Use the following information for Exercises 11-31 and 11-32: Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last years results: Washingtons actual cost of capital was 12%. Exercise 11-31 Economic Value Added Refer to the information for Washington Company above. Required: 1. Calculate the EVA for the Adams Division. 2. Calculate the EVA for the Jefferson Division. 3. CONCEPTUAL CONNECTION Is each division creating or destroying wealth? 4. CONCEPTUAL CONNECTION Describe generally the types of actions that Washingtons management team could take to increase Jefferson Divisions EVA?
- Communication The Norse Division of Gridiron Concepts Inc. experienced significant revenue and profit growth from 20Y4 to 20Y6 as shown in the following divisional income statements: There are no support department allocations, and the division operates as an investment center that must maintain a 15% return on invested assets. Determine the profit margin, investment turnover, and return on investment for the Norse Division for 20Y420Y6. Based on your computations, write a brief memo to the president of Gridiron Concepts Inc., Knute Holz, evaluating the divisions performance.Each of the following scenarios requires the use of accounting information to carry out one or more of the following managerial activities: (1) planning, (2) control and evaluation, (3) continuous improvement, or (4) decision making. a. MANAGER: At the last board meeting, we established an objective of earning an after-tax profit equal to 20 percent of sales. I need to know the revenue that we need to earn in order to meet this objective, given that we have 250,000 to spend on the promotional campaign. Once I have estimated sales in units, we then need to outline a promotional campaign that conforms to our budget and that will take us where we want to be. However, to compute the targeted sales revenue, I need to know the unit sales price, the unit variable cost, and the associated fixed production and support costs. I also need to know the tax rate. b. MANAGER: We have problems with our procurement process. Our accounts payable department is spending 80 percent of its time resolving discrepancies between the purchase order, receiving order, and suppliers invoice. Incorrect part numbers on the purchase orders, incorrect quantities ordered, and wrong parts sent (or the incorrect quantity) are just a few examples of sources of discrepancies. A complete redesign of the process has been suggested, which will allow us to eliminate virtually all of the errors and, at the same time, significantly reduce the number of clerks needed in purchasing, receiving, and accounts payable. This redesign promises to significantly reduce costs, decrease lead time, and increase customer satisfaction. c. MANAGER: This overhead cost report indicates that we have spent significantly more on inspection, purchasing, and production than was budgeted. An investigation has revealed that the source of the problem is faulty components from suppliers. A supplier evaluation has revealed that by selecting five suppliers with the best quality records (out of 15 currently used), the number of defective components will be dramatically reduced, thus producing significant overhead savings by reducing the demand for inspections, reordering, and rework. d. MANAGER: A large local firm has approached me and has offered to sell us one of the components used in our small enginesa component that we are currently producing internally. I need to know costs that we would avoid if this component is purchased so that I can assess the economic merits of this offer. e. MANAGER: Currently, our deluxe lawn mower is losing money. We need to increase profits. I would like to know how much our profits would be if we reduce our variable costs by 50 per mower while maintaining our current sales volume. Also, marketing claims that if we increase advertising expenditures by 1,000,000 and cut prices by 15 percent, we can increase the number of mowers sold by 25 percent. I would like to know which approach offers the most profit, or if a combination of the approaches may be best. f. MANAGER: We are implementing a major quality improvement program. We will be increasing the investment in prevention and detection activities with the expectation of driving down both internal and external failure costs. I expect to see trend reports for all categories of quality costs. I want to see if improving quality really does reduce costs and improve profitability. g. MANAGER: Our engineering design department has proposed a new design for our product. The new design promises to reduce post-purchase costs and, as a consequence, increase market share. I need to know the cost of producing this new design because it uses some new components and requires some different manufacturing processes. I would then like to have a projected income statement based on the new market share and new production costs. The planned selling price will be the same, or maybe even 10 percent lower. Projections based on the two price scenarios would be needed. h. MANAGER: My engineers have said that by redesigning our two main production processes, we can reduce move time by 90 percent and wait time by 85 percent. This would decrease cycle time and virtually eliminate the need to carry finished goods inventories. On-time deliveries would also increase dramatically. This would produce cost savings of nearly 20,000,000 per year. Market share and revenues would also increase. Required: 1. Describe each of the four managerial responsibilities. 2. Identify the managerial activity or activities applicable for each scenario, and indicate the role of accounting information in the activity.Analyze Horsepower Hookup, Inc. Horsepower Hookup, Inc., is a large automobile company that specializes in the production of high-powered trucks. The company is determining cost allocations for purposes of performance evaluation. A portion of company bonuses depends on divisions achieving cost management goals. This necessitates highly accurate support department cost allocation. Management has also stated that it has the means to implement as complex a method as necessary. The general manager over the Mid-Size D wants to get a good idea of what factors are driving the costs of the support departments in order to make accurate cost allocations, so finding accurate support department cost drivers is important. Support department costs include Janitorial (163,100) and Security (285,400). The Janitorial costs vary depending on the number of vehicles produced, increasing with larger production volumes. Security costs are fixed based on the size of the lot, and do not change with respect to how many vehicles are in the lot or warehouse. Joint costs involved in producing the trucks before the split-off point where the various makes, models, and colors are produced are 946,000 for the period. All makes, models, and colors sell at relatively similar margins, but the sports models and metallic colors are normally more difficult to produce during the joint production process. a. Which support department cost allocation method (direct, sequential, or reciprocal services) should be used to allocate support department cost? b. What driver would be best for allocating Janitorial costs? c. What driver would be best for allocating Security costs? d. If Janitorial costs were to be allocated based on square footage, and Security costs based on asset value, what percentage of each support departments costs would be allocated to each production department using the sequential method (allocating Security costs first) given the following: e. Should Janitorial and Security costs be considered when evaluating the performance of cost management employees? f. What joint cost allocation method should be used for performance evaluation purposes?
- Responsibility accounting holds managers responsible for _______. A. all costs charged to their subunit B. all costs charged to their subunit plus a share of companywide fixed costs C. only the costs that they can control D. only the costs that they have personally approvedThe three divisions of Yummy Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are structured as investment centers. The following responsibility reports were prepared for the three divisions for the prior year: a. Which division is making the best use of invested assets and should be given priority for future capital investments? b. b. Assuming that the minimum acceptable return on new projects is 19%, would all investments that produce a return in excess of 19% be accepted by the divisions? Explain. c. c. Identify opportunities for improving the companys financial performance.Two departments within Cougar Gear Inc. are Production and Sales. Each department has a unique scorecard, as follows: The Production Department scorecard focuses on the learning and growth and internal processes perspectives. The Sales Department scorecard focuses on the learning and growth and customer perspectives. Both scorecards have the learning and growth performance metrics of median training hours per employee and average employee tenure. The Production scorecard has the unique metrics of production time per unit and number of production shutdowns. The Sales scorecard has the unique metrics of percentage of customers who shop again and online customer satisfaction rating. The performance targets for each metric are shown in the tan boxes just under the performance metrics. The actual achieved metrics are shown in the red boxes just below the tan boxes. When evaluating both departments, Cougar Gears management looks at the median training hours per employee and average employee tenure metrics and subsequently decides to give the Sales Department a large bonus while giving the Production Department a minimal bonus. a. Determine and define the type of cognitive bias Cougar Gears management has exhibited in this instance. b. Determine which department would have received the larger bonus had the companys management not been biased in the evaluation. c. Discuss one advantage and one disadvantage of using unique balanced scorecards for different departments or divisions of a company.
- Classify each of the following performance measures into the balanced scorecard perspective to which it relates: financial perspective, internal operations perspective, learning and growth perspective, or customer perspective. A. Employee satisfaction surveys B. Units of waste per production process, uniformity of products and inventory control C. Number of energy-efficient bulbs replaced D. Management training course certificates awarded E. Divisional profit F. Number of customer referralsDivision A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of $30,000, and invested assets of $600000. What is the return on investment for Division A? A. 20% B. 25% C. 33% D. 40%____ 1.Which of the following is a responsibility center that incurs expenses, generates revenues, and is responsible for generating a return on assets? a. Cost center b. Revenue center c. Profit center d. Investment center ____ 2.Which one of the following is the most useful measure for evaluating a manager's performance in controlling revenues and costs in a profit center? a. Contribution margin b. Contribution net income c. Contribution gross profit d. Controllable margin ____ 3.Hanover Corporation desires to earn target net income of $42,000. The selling price per unit is $18, unit variable cost is $5.60, and total fixed costs are $123,912. How many units must the company sell to earn its target net income? a. 13,380 b. 9,993 c. 3,387 d. 9,217 ____ 4.Remark…