contributes the largest dollar amount to total overhead? Which department contributes the highest percent (as a percent of sales) to total overhead? Dept. A Dept. B Dept. C Sales $ 53,000 $ 180,000 $ 84,000 Costs of goods sold 34,185 103,700 49,560 Gross profit 18,815 76,300 34,440 Total direct expenses 3,660 37,060
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Use the information in the following table to compute each department’s contribution to overhead (both in dollars and as a percent). Which department contributes the largest dollar amount to total overhead? Which department contributes the highest percent (as a percent of sales) to total overhead?
| Dept. A | Dept. B | Dept. C | |||||||
| Sales | $ | 53,000 | $ | 180,000 | $ | 84,000 | |||
| Costs of goods sold | 34,185 | 103,700 | 49,560 | ||||||
| Gross profit | 18,815 | 76,300 | 34,440 | ||||||
| Total direct expenses | 3,660 | 37,060 | 7,386 | ||||||
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- Activity-based department rate product costing and product cost distortions Big Sound Inc. manufactures two products: receivers and loud-speakers. The factory overhead incurred is as follows: Indirect labor 400,400 Cutting Department 198,800 Finishing Department 114,800 Total 714,000 The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Activity Budgeted Activity Cost Activity Base Setup 138,600 Number of setup Quality Control 261,800 Number of inspections Total 400,400 The activity-base usage quantities and units produced for the two products follow: Number o Setup Number of Inspections Direct Labor HoursSubassembly Direct Labor HoursFinal Assembly Units Produced Snowboards 430 5,000 4,000 2,000 6,000 Skis _70 2,500 2,000 4,000 6,000 Total 500 7,500 6,000 6,000 12,000 Instructions 1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is 5420,000 and 294,000 for the Subassembly and Final Assembly departments, respectively. 2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). 3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. 4. Determine the total and per-unit cost assigned to each product under activity-based costing. 5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.Profit center responsibility reporting XSport Sporting Goods Co. operates two divisionsthe Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y9, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted: SalesWinter Sports Division.......................................... 10,500,000 SalesSummer Sports Division........................................ 13,600,000 Cost of Goods SoldWinter Sports Division ............................ 6,300,000 Cost of Goods SoldSummer Sports Division........................... 7,888,000 Sales ExpenseWinter Sports Division ................................. 1,680,000 Sales ExpenseSummer Sports Division ............................... 1,904,000 Administrative ExpenseWinter Sports Division........................ 1,050,000 Administrative ExpenseSummer Sports Division....................... 1,210,400 Advertising Expense .................................................. 482,000 Transportation Expense ............................................... 240,000 Accounts Receivable Collection Expense................................ 120,500 Warehouse Expense................................................... 1,200,000 The bases to be used in allocating expenses, together with other essential information, are as follows: A. Advertising expenseincurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, 216,900; Summer Sports Division, 265,100. B. Transportation expensecharged back to divisions at a charge rate of 8.00 per bill of lading: Winter Sports Division, 14,400 bills of lading; Summer Sports Division, 15,600 bills of lading. C. Accounts receivable collection expenseincurred at headquarters, charged back to divisions at a charge rate of 5.00 per invoice: Winter Sports Division. 9,640 sales invoices; Summer Sports Division, 14,460 sales invoices. D. Warehouse expensecharged back to divisions on the basis of floor space used in storing division products: Winter Sports Division. 94,000 square feet; Summer Sports Division, 106,000 square feet. Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Provide supporting calculations for service department charges.Activity-based and department rate product costing and product cost distortions Black and Blue Sports Inc. manufactures two products: snowboards and skis. The factory overhead incurred is as follows: Indirect labor 507,000 Cutting Department 156,000 Finishing Department 192,000 Total 855,000 The activity hase associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Activity Budgeted Activity Cost Activity Base Production control 237,000 Number of production runs Materials handling 270,000 Number of moves Total 507,000 The activity-base usage quantities and units produced for the two products follow: Number o Production Runs Number of Moves Direct Labor HoursCutting Direct Labor HoursFinishing Units Produced Snowboards 430 5,000 4,000 2,000 6,000 Skis _70 2,500 2,000 4,000 6,000 Total 500 7,500 6,000 6,000 12,000 Instructions 1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is 315,000 and 540,000 for the Cutting and finishing departments, respectively. 2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). 3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. 4. Determine the total and per-unit cost assigned to each product under activity-based costing. 5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.
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Briefly list factors other than contribution margin that should be considered in evaluating the performance of salespersons.Effect of proposals on divisional performance A condensed income statement for the Commercial Division of Maxell Manufacturing Inc. for the year ended December 31, 20Y9, is as follows: Sales 3,500,000 Cost of goods sold 2,480,000 Gross profit 1,020,000 Operating expenses 600,000 Income from operations 420,000 Invested assets 2,500,000 Assume that the Commercial Division received no charges from service departments. The president of Maxell Manufacturing has indicated that the division's return on a 2,500,000 investment must be increased to at least 21% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of 312,500 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by 105,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by 560,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional 1,875,000 for the year. Proposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of 595,000, reduce cost of goods sold by 406,700, and reduce operating expenses by 175,000. Assets of 1,338,000 would be transferred to other divisions at no gain or loss. Instructions 1. using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Commercial Division for the past year. 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. (Round the investment turnover and return on investment to one decimal place.) 4. Which of the three proposals would meet the required 21% return on investment? 5. If the Commercial Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the presidents required 21% return on investment?Effect of proposals on divisional performance A condensed income statement for the Electronics Division of Gihbli Industries Inc. for live year ended December 31 is as follows: Sales 1.575,000 Cost of goods sold 891,000 Gross profit 684,000 Operating expenses 558,000 Income from operations 126,000 Invested assets 1,050,000 Assume that the Electronics Division received no charges from service departments. The president of Gihbli Industries Inc. has indicated that the divisions return on a 1,050,000 investment must be increased to at least 20% by the end of tin- next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of 300,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by 31,400. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of 180,000, reduce cost of goods sold by 119,550, and reduce operating expenses by 60,000. Assets of 112,500 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by 189,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by 918,750 for the year. Instructions 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round percentages and the investment turnover to one decimal place. 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round percentages and the investment turnover to one decimal place. 4. Which of the three proposals would meet the required 20% return on investment? 5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 20% return on investment? Round to one decimal place.
