Jansen Company reports the following for its ski department for the year 2019. All of its costs are direct, except as noted. Sales $ 605,000 Cost of goods sold 425,000 Salaries 112,000 ($15,000 is indirect) Utilities 14,000 ($3,000 is indirect) Depreciation 42,000 ($10,000 is indirect) Office expenses 20,000 (all indirect) 1. Prepare a departmental income statement for 2019. 2. & 3. Prepare a departmental contribution to overhead report for 2019. Based on these two performance reports, should Jansen eliminate the ski department?
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Exercise 22-8 Departmental income statement and contribution to overhead LO P3
Jansen Company reports the following for its ski department for the year 2019. All of its costs are direct, except as noted.
| Sales | $ | 605,000 | |
| Cost of goods sold | 425,000 | ||
| Salaries | 112,000 | ($15,000 is indirect) | |
| Utilities | 14,000 | ($3,000 is indirect) | |
| 42,000 | ($10,000 is indirect) | ||
| Office expenses | 20,000 | (all indirect) | |
1. Prepare a departmental income statement for 2019.
2. & 3. Prepare a departmental contribution to overhead report for 2019. Based on these two performance reports, should Jansen eliminate the ski department?
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- Construct and interpret a product profitability report, allocating selling and administrative expenses Naper Inc. manufactures power equipment. Naper has two primary productsgenerators and air compressors. The following report was prepared by the controller for Napers senior marketing management for the year ended December 31: Generators Air Compressors Total Revenue 4,200,000 3,000,000 7,200,000 Cost of goods sold 2,940,000 2,100,000 5,040,000 Gross profit 1,260,000 900,000 2,160,000 Selling and administrative expenses 610,000 Income from operations 1,550,000 The marketing management team was concerned that the selling and administrative expenses were not traced to the products. Marketing management believed that some products consumed larger amounts of selling and administrative expense than did other products. To verify this, the controller was asked to prepare a complete product profitability report, using activity-based costing. The controller determined that selling and administrative expenses consisted of two activities: sales order processing and post-sale customer service. The controller was able to determine the activity base and activity rate for each activity, as follows: Activity Activity Base Activity Rate Sales order processing Sales orders 65 per sales order Post-sale customer service Service requests 200 per customer service request The controller determined the following activity-base usage information about each product: Generators Air Compressors Number of sales orders 3,000 4,000 Number of service requests 225 550 A. Determine the activity cost of each product for sales order processing and post-sale customer service activities. B. Use the information in (A) to prepare a complete product profitability report dated for the year ended December 31. Compute the gross profit to sales and the income from operations to sales percentages for each product. (Round to two decimal places.) C. Interpret the product profitability report. How should management respond to the report?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.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.
- Profit center responsibility reporting Glades 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, 20Y8, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted: SalesWinter Sports Division 12,600,000 SalesSummer Sports Division 16,300,000 Cost of Goods SoldWinter Sports Division 7,560,000 Cost of Goods SoldSummer Sports Division 9,454,000 Sales ExpenseWinter Sports Division 2,016,000 Sales ExpenseSummer Sports Division 2,282,000 Administrative ExpenseWinter Sports Division 1,260,000 Administrative ExpenseSummer Sports Division 1.450,700 Advertising Expense 578,000 Transportation Expense 265,660 Accounts Receivable Collection Expense 174,000 Warehouse Expense 1,540,000 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, 252,000; Summer Sports Division, 326,000. b.Transportation expensecharged back to divisions at a charge rate of 7.40 per bill of lading: Winter Sports Division, 17,200 bills of lading; Summer Sports Division, 18,700 bills of lading. c.Accounts receivable collection expenseincurred at headquarters, charged back to divisions at a charge rate of 6.00 per invoice: Winter Sports Division, 11,500 sales invoices; Summer Sports Division, 17,500 sales invoices. d.Warehouse expensecharged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 102,000 square feet; Summer Sports Division, 118,000 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.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.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.
