Bartleby Sitemap - Textbook Solutions
All Textbook Solutions for Survey of Accounting (Accounting I)
11.4.2P11.4.3P11.4.4P11.5.1P11.5.2PSales mix and break-even sales Data related to the expected sales of kayaks and canoes for River Sports Inc. for the current year, which is typical of recent years, are as follows: The estimated fixed costs for the current year are $1.440.000. Instructions Assume that the sales mix was 20% kayaks and 80% canoes. Determine the estimated units of sales of overall product necessary to reach the break-even point for the current year.11.5.4P11.5.5PContribution margin, break-even sales, cost-volume-profit graph, and operating leverage Organic Health Care Products Inc. expects to maintain the same inventories at the end of 20Y8 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during 20Y8. A summary report of these estimates is as follows: It is expected that 400.000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500.000 units. Instructions Prepare an estimated income statement for 20Y8.Contribution margin, break-even sales, cost-volume-profit graph, and operating leverage Organic Health Care Products Inc. expects to maintain the same inventories at the end of 20Y8 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during 20Y8. A summary report of these estimates is as follows: It is expected that 400.000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500.000 units. Instructions What is the expected contribution margin ratio?Contribution margin, break-even sales, cost-volume-profit graph, and operating leverage Organic Health Care Products Inc. expects to maintain the same inventories at the end of 20Y8 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during 20Y8. A summary report of these estimates is as follows: It is expected that 400.000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500.000 units. Instructions Determine the break-even sales in units.Contribution margin, break-even sales, cost-volume-profit graph, and operating leverage Organic Health Care Products Inc. expects to maintain the same inventories at the end of 20Y8 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during 20Y8. A summary report of these estimates is as follows: It is expected that 400.000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500.000 units. Instructions Construct a cost-volume-profit graph indicating the break-even sales.Contribution margin, break-even sales, cost-volume-profit graph, and operating leverage Organic Health Care Products Inc. expects to maintain the same inventories at the end of 20Y8 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during 20Y8. A summary report of these estimates is as follows: It is expected that 400.000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500.000 units. Instructions Determine the operating leverage.Margin of safety a. If Go-Go Buggies Company, with a break-even point at $6.000.000 of sales, has actual sales of 48.000,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? b. If die margin of safety for Beartooth Company was 15%. fixed costs were $9,180,000. and variable costs were 60% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.)11.2MBAMargin of safety Use the data from E11-12 and assume that break-even sales are $2,798 million. Determine the following for Molson-Coors Brewing Company. Round to one decimal place. Margin of safety expressed as dollar sales.Margin of safety Use the data from E11-12 and assume that break-even sales are $2,798 million. Determine the following for Molson-Coors Brewing Company. Round to one decimal place. Margin of safety expressed as a percentage.Sales mix and margin of safety Use the data from E11-20. assume that 31.500 units of digital game players and 13.500 computer tablets were sold in the current year. Assuming no change in the sales mix, determine the following for Northwest Technology Inc. Round to one decimal place. Margin of safely for game players expressed as (a) units sold, (b) sales dollars, and (c) a percentage.11.4.2MBA11.4.3MBAMargin of safety Using the data from P11-2, determine the following for 20Y5. Margin of safety for 20Y5.11.5.2MBAMargin of safety Using the data from P11-6. determine the following based upon the estimates for 20Y8: Margin of safety for 20Y8 in units sold.11.6.2MBA11.6.3MBA11.1CBreak-even sales, contribution margin "Every airline has what is called a break-even load factor. Thai is. the percentage of scats the airline . . . (flies) . . . that it must sell ... to cover its costs. Since revenue and costs vary from one airline to another, so does the break-even factor. . . . Overall, the break-even load factor for the (airline) industry in recent years has been approximately 66 percent." The airline industry is notorious for boom and bust cycles. Why is airline profitability very sensitive to these cycles? Do you think that during a down cycle the strategy' to consolidate routes and raise ticket prices is reasonable? What would nuke this strategy succeed or fail? Why? Source: http://www.avjobs.coni/history/airline-economics.asp.Break-even analysis Aquarius Games Inc. has finished a new video game. Triathlon Challenge. Management is now considering its marketing strategies. The following information is available: Two managers. Haley Chipana and Dan Gillespie, had the following discussion of ways to increase the profitability of this new offering: Haley: I think we need to think of sonic way to increase our profitability. Do you have any ideas? Dan: Well, I think the best Strategy would be to become aggressive on price. Haley: How aggressive? Dan: If we drop the price to $60 per unit and maintain our advertising budget at $15.000.000,1 think we will generate sales of 2,000.000 units. Haley: I think that's the wrong way to go. You're giving too much up on price. Instead. I think we need to follow an aggressive advertising strategy. Dan: How aggressive? Haley: If we increase our advertising to a total of $20,000,000. we should be able to increase sales volume to 1,200.000 units without any change in price. Dan: 1 don't think that's reasonable. We'll never cover the increased advertising costs. Which strategy is best: Do nothing? Follow the advice of Dan Gillespie? Or follow Haley Chipana's strategy?Variable costs and activity bases in decision making The owner of Dawg Prints, a printing company, is planning direct labor needs for the upcoming year. The owner has provided you with the following information for next year's plans: Each color on the banner must be printed one at a time. Thus, for example, a four-color banner will need to be run through the printing operation four separate times. The total production volume last year was 600 banners, as shown below. The four-color banner is a new product offering for the upcoming year. The owner believes that the expected 600-unit increase in volume from last year means that direct labor expenses should increase by 100% (600 + 600). What do you think?Variable costs and activity bases in decision making Sales volume has been dropping at Pinnacle Publishing Company. During this time, however, the Shipping Department manager has been under severe financial constraints. The manager knows that most of the Shipping Department's effort is related to pulling inventory from the warehouse for each order and performing the paperwork. The paperwork involves preparing shipping documents for each order. Thus, the pulling and paperwork effort associated with each sales order is essentially the same, regardless of the size of the order. The Shipping Department manager has discussed the financial situation with senior management. Senior management has responded by pointing out that sales volume has been dropping, so that the amount of work in the Shipping Department should be dropping. Thus, senior management told the Shipping Department manager that costs should be decreasing in the department. The Shipping Department manager prepared the following information: Given this information, how would you respond to senior management?11.6CMario Company is considering discontinuing a product. The costs of the product consist of $20,000 fixed costs and $15,000 variable costs. The variable operating expenses related to the product total $4,000. What is the differential cost? A. $19,000 B. $15,000 C. $35,000 D. $39,000Victor Company is considering disposing of equipment that was originally purchased for $200,000 and has $150,000 of accumulated depreciation to date. The same equipment would cost 5310,000 to replace. What is the sunk cost? A. $50,000 B. $150,000 C. $200,000 D. $310,0003SEQFor which cost concept used in applying (he cost-plus, approach to product pricing are fixed manufacturing costs, fixed selling and administrative expenses, and desired profit allowed for in determining the markup? A. Total cost B. Product cost C. Variable cost D. Standard cost5SEQ1CDQ2CDQA company could sell a building for $650,000 or lease it out for $5,000 per month. What would need to be considered in determining if the lease option would be preferred?4CDQ5CDQA company fabricates a component at a cost of $7.75. A supplier offers to supply the same component for $6. IS. Under what circumstances is it reasonable to purchase from the supplier?7CDQ8CDQ9CDQ10CDQ11CDQ12CDQLease or sell decision Orwell Industries is considering selling excess machinery with a book value of $300,000 (original cost of $950,000 less accumulated depreciation of $650,000) for $145,000 less a 5% brokerage commission. Alternatively, the machinery can be leased out for a total of $215,000 for five years, after which it is expected to have no residual value. During the period of the lease. Orwell Industries' costs of repairs, insurance, and property tax expenses are expected to be $80,000. a.Prepare a differential analysis report for the lease or sell decision. b.On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.12.2E12.3E12.4E12.5EMake-or-buy decision Watts Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $6.50 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 60% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: If Watts Technologies Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factor)' overhead costs associated with the cases are expected to be 20% of the direct labor costs. a.Prepare a differential analysis report for the make-or-buy decision. b.On I he basis of the data presented, would it Ik- advisable to make the earning cases or to continue buying them? Explain.Make-or-buy decision Wisconsin Arts of Milwaukee employs five people in its Publication Department. These people lay out pages for pamphlets, brochures, and other publications for the productions. The pages are delivered to an outside company for printing. The company is considering an outside publication service for the layout work. The outside service is quoting a price of $9.50 per layout page. The budget for the Publication Department is as follows: The department expects to lay out 30,000 pages. The computers used by the department have an estimated residual value of $6,500. The Publication Department office space would be used for future administrative needs if the department's function were purchased from the outside. a.Prepare a differential analysis report for the make-or-buy decision, considering the differential revenues and costs. b.On the basis of your analysis in part (a), should the page layout work be purchased from an outside company? c.What additional considerations might factor into the decision making?Machine replacement decision Creekside Products Inc. is considering replacing an old piece of machinery, which cost $315,000 and has $130,000 of accumulated depreciation to date, with a new machine that costs $275,000. The old machine could be sold for $140,000. The annual variable production costs associated with the old machine are estimated to be $30,000 for eight years. The annual variable production costs for the new machine are estimated to be $9,000 for eight years. a.Determine the total and annualized differential income or loss anticipated from replacing the old machine. b.What is the sunk cost in thus situation?Differential analysis report for machine replacement Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $75,000. the accumulated depreciation is $30,000, its remaining useful life is eight years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $160,000. The automatic machine has an estimated useful life of eight years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations: a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated. b.Based only on the data presented, should the proposal be accepted? CWhat are some of the other factors that should be considered In-fore a final decision is made?Sell or process further St. Paul Lumber Company incurs a cost of $280 per hundred board feet in processing certain "rough-cut" lumber, which it sells for $320 per hundred board feet. An alternative is to produce a "finished cut" at a total processing cost of $350 per hundred board feet, which can be sold for $415 per hundred board feet. What is the amount of (a) the differential revenue, (b) differential cost, and (c) differential income for processing rough-cut lumber into finished cut?12.11EDecision on accepting additional business Madison Industries Inc. has an annual plant capacity of 800.000 units, and current production is 650,000 units. Monthly fixed costs are $1,200,000 and variable costs are $36 per unit. The present selling price is $50 per unit. The company received an offer from Story Mills Company for 125,000 units of the product at $41 each. Story Mills Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Madison Industries Inc. a.Prepare a differential analysis report for the proposed sale to Story Mills Company. b.Briefly explain the reason why accepting this additional business will increase operating income. c.What is the minimum price per unit that would produce a contribution margin?Accepting business at a special price Palomar Battery Company expects to operate at 75% of full capacity during April. The total manufacturing costs for April for the production of 60.000 batteries are budgeted as follows: The company has an opportunity to submit a bid for 17,500 batteries to be delivered by April 30 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during April or increase the selling or administrative expenses. a.What is the April budgeted cost per battery for the production of 60.000 batteries?' b.What is the unit cost below which Palomar Battery Company should not go in bidding on the government contract?12.14ETotal cost concept of product costing Willis Products Inc. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 200,000 units of medical tablets are as follows: Willis Products desires a profit equal to a 20% rate of return on invested assets of $12,000,000. a.Determine the amount of desired profit from the production and sale of 200.000 units. b.Determine the total costs and the costamount per unitfor the production and sale of 200,000 units. c.Determine the total cost markup percentage per unit. d.Determine the selling price per unit.Product cost concept of product pricing Based on the data presented in Exercise 12-15, assume that Willis Products Inc. uses the product cost concept of applying the cost-plus approach to product pricing. a.Determine the total manufacturing costs and the cost amount per unit for the production and sale of 200,000 units. b.Determine the product cost markup percentage per unit. Round to two decimal place. c.Determine the selling price per unit. Round to the nearest dollar.Variable cost concept of product pricing Based on the data presented in Exercise 12-15, assume that Willis Products Inc. uses the variable cost concept of applying the cost-plus approach to product pricing. a.Determine the variable costs and the cost amount per unit for the production and sale of 200,000 units of medical tablets. b.Determine the variable cost markup percentage per unit. Round to two decimal place. c.Determine the selling price per unit. Round to the nearest dollar.Target costing Toyota Motor Corporation (TM) uses target costing. Assume that Toyota marketing personnel estimate that the competitive, average selling price for the Rav4 in the upcoming model year will need to be $25,000. Assume further that the Ravi's total unit cost for the upcoming model year is estimated to be $21,000 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost). a.What price will Toyota establish for the Rav4 for the upcoming model year? b.What impact will target costing have on Toyota, given the assumed information?Differential analysis report involving opportunity costs Five Star is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $900.000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Instructions Prepare a differential analysis report of the proposed operation of the warehouse for the 15 years as compared with present conditions.12.1.2P12.1.3PDifferential analysis report for machine replacement proposal Catalina Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Annual nonmanufacturing operating expenses and revenue are not expected to be affected by the purchase of the new machine. Instructions Prepare a defferential analysis report comparing operations utilizing the new machine wilh operations using the old machine. The analysis should indicate the differential income that would result over the eight-year period if the new machine is acquired.Differential analysis report for machine replacement proposal Catalina Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Annual nonmanufacturing operating expenses and revenue are not expected to be affected by the purchase of the new machine. Instructions List other factors that should be considered before a final decision is reached.Differential analysis report for sales promotion proposal Rocket Shoe Company is planning a one-month campaign for August to promote sales of one of its two shoe products. A total of $500,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign. No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 25.000 additional units of cross-trainer shoes or 18,000 additional units of running shoes could be sold without changing the unit selling price of either product. Instructions Prepare- a diferential analysis report presenting the addilional revenue and addilional costs anticipated from the promotion of cross-trainer shoes and running shoes.Differential analysis report for sales promotion proposal Rocket Shoe Company is planning a one-month campaign for August lo promote sales of one of its two shoe products. A total of $500,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign. No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 25.000 additional units of cross-trainer shoes or 18,000 additional units of running shoes could be sold without changing the unit selling price of either product. Instructions The sales manager has tentatively decided to promote cross-trainer shoes, estimating that operating income will increase by $150,000 ($26 operating income per units for 25,000 units, less promotion expenses of $500,000). The manager also believes that the selection of running shoes will decrease operating income by $68,000 ($24 operating income per unit for 18,000 units, less promotion expenses of $500,000). State briefly your reasons for supporting or opposing the tentative decision.Differential analysis report for further processing The management of Dorsch Aluminum Co. is considering whether 10 process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $4,100 per ton, and ingot can be sold without further processing for $2,400 per ton. Ingot is produced in batches of 80 tons by smelting 400 tons of bauxite, which costs $500 per ton. Rolled aluminum will require additional processing costs of $750 per ton of ingot, and 1.25 tons of ingot will produce 1 ton of rolled aluminum (due to trim losses). Instructions Prepare a report presenting a differential analysis associated with the further processing of aluminum ingot to produce rolled aluminum.12.4.2PProduct pricing using the cost-plus approach concepts; differential analysis report for accepting additional business Twilight Lumina Company recently began production of a new product, the halogen light. which required an investment of $1,200,000 in assets. The costs of producing and selling 20.000 halogen lights are estimated as follows: Twilight Lumina Company is currently considering establishing a selling price for the halogen light. The president of Twilight Lumina Company has decided to use the cost-plus approach to product pricing and has indicated that the halogen light must earn a 20% rate of return on invested assets. Instructions Determine the amount of desired profit from the production and sale of the halogen light.12.5.2P12.5.3PProduct pricing using the cost-plus approach concepts; differential analysis report for accepting additional business Twilight Lumina Company recently began production of a new product, the halogen light. which required an investment of $1,200,000 in assets. The costs of producing and selling 20.000 halogen lights are estimated as follows: Twilight Lumina Company is currently considering establishing a selling price for the halogen light. The president of Twilight Lumina Company has decided to use the cost-plus approach to product pricing and has indicated that the halogen light must earn a 20% rate of return on invested assets. Instructions Assuming that the variable cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of the halogen light.12.5.5PProduct pricing using the cost-plus approach concepts; differential analysis report for accepting additional business Twilight Lumina Company recently began production of a new product, the halogen light. which required an investment of $1,200,000 in assets. The costs of producing and selling 20.000 halogen lights are estimated as follows: Twilight Lumina Company is currently considering establishing a selling price for the halogen light. The president of Twilight Lumina Company has decided to use the cost-plus approach to product pricing and has indicated that the halogen light must earn a 20% rate of return on invested assets. Instructions Assume that 15.000 units of the halogen light have been produced and sold during the current year. Analysis of the domestic market indicates that 2.000 additional units of the halogen light are expected to be sold during the remainder of the year at the normal product price determined under the total cost concept. Twilight Lumina Company received an offer from Contech Inc. for 3.000 units of the halogen light at $52 each. Contech Inc. will market the units in Southeast Asia under its own brand name, and no selling and administrative expenses associated with the sale will be incurred by Twilight Lumina Company. The additional business is not expected to affect the domestic sales of the halogen light, and the additional units could be produced using existing capacity. a. Prepare a differential analysis report of the proposed sale to Contech Inc. b. Based on the differential analysis report in part (a), should the proposal be accepted?12.1MBA12.2MBA12.3.1MBAContribution margin per constraint Using the data and your answers from MBA 12-2, determine the following: Assuming the selling price for Mirror glass cannot be changed, how much will the variable costs for Mirror glass need to be reduced so it is as profitable as Regular glass.12.3.3MBAContribution margin per constraint Using the data and your answers from MBA 12-2, determine the following: The selling price necessary for Laminated glass to be as profitahle as Regular glass.12.4.2MBAContribution margin per constraint Using the data and your answers from MBA 12-2, determine the following: Assuming the selling price and variable costs for Laminated glass cannot be changed, how much will the furnace hours required for Laminated glass need to Ix- reduced to make it as profitable as Regular glass.12.5.1MBA12.5.2MBA12.5.3MBAProduct pricing Bev Frazier is a cost accountant for Ocean Atlantic Apparel Inc. Jeff Rangel, vice president of marketing, has asked Bev to meet with representatives of Ocean Atlantic Apparel's major competitor to discuss product cost data. Jeff indicates that the sharing of these data will enable Ocean Atlantic to determine a fair and equitable price for its products. Would it be ethical for Bev to attend the meeting and share the relevant cost data?12.2C12.3CCost-plus and target costing concepts The following conversation took place between Dean Lancaster, vice president of marketing, and Dina Conaway, controller of Redwood Computer Company: Dealt: I am really excited about our new computer coming out. 1 think ii will lx* a real market success. Dina: I'm really glad you think so. I know that our success will In- determined by our price. If our price is too high, our competitors will be the ones with the market success. Dean: Don't worry about it. We'll just mark our product cost up by 25% and it will all work out. I know we'll make money at those markups. By the way. what does the estimated product com look like? Dina: Well, there's the rub. The product cost looks as if it's going 10 come in at around $1,000. With a 25% markup, that will give us a selling price of $1,250. Dean: I see your concern. That's a little high. Our research indicates that computer prices are dropping and that (his type of computer should be selling for around $900 when we release it to the market. Dina: I'm not sure what to do. Dean: Let me see if I can help. How much of the $1,000 is fixed cost? Dina: About $300. Dean: There you go. The fixed cost is sunk. We don't need to consider it in our pricing decision. If we reduce the product cost by $300, the new price with a 25% markup would be right at $875. Boy, I was really worried for a minute there. 1 knew something wasn't right. 1.If you were Dina, how would you respond to Dean's solution to the pricing problem?Cost-plus and target costing concepts The following conversation took place between Dean Lancaster, vice president of marketing, and Dina Conaway, controller of Redwood Computer Company: Dealt: I am really excited about our new computer coming out. 1 think ii will lx* a real market success. Dina: I'm really glad you think so. I know that our success will In- determined by our price. If our price is too high, our competitors will be the ones with the market success. Dean: Don't worry about it. We'll just mark our product cost up by 25% and it will all work out. I know we'll make money at those markups. By the way. what does the estimated product com look like? Dina: Well, there's the rub. The product cost looks as if it's going 10 come in at around $1,000. With a 25% markup, that will give us a selling price of $1,250. Dean: I see your concern. That's a little high. Our research indicates that computer prices are dropping and that (his type of computer should be selling for around $900 when we release it to the market. Dina: I'm not sure what to do. Dean: Let me see if I can help. How much of the $1,000 is fixed cost? Dina: About $300. Dean: There you go. The fixed cost is sunk. We don't need to consider it in our pricing decision. If we reduce the product cost by $300, the new price with a 25% markup would be right at $875. Boy, I was really worried for a minute there. 1 knew something wasn't right. How might target costing be used to help solve this pricing dilemma?Static budgets are often used: A.By production departments B.By administrative departments CBy responsibility centers D.For capital projectsThe total estimated sales for the coming year is 250,000 units. The estimated inventory at the beginning of the year is 22,500 units, and the desired inventory at the end of the year is 30,000 units. The total production indicated in the production budget is: A.242,500 units B.257,500 units C.280,000 units D.302,500 unitsDixon Company expects $650,000 of credit sales in March and $800,000 of credit sales in April. Dixon historically collects 70% of its sales in the month of sale and 30% in the following month. How much cash does Dixon expect to collect in April? A.$800,000 B. $560,000 C. $755,000 D. $1,015,000The actual and standard direct materials costs for producing a specified quantity of product are as follows: The direct materials price variance is: A. $50 unfavorable B.$2,500 unfavorable C. $2,550 unfavorable D.$7,550 unfavorableBower Company produced 4,000 units of product. The direct labor standard quantity is 0.5 hours per unit. The standard labor rate is $12 per hour. Actual direct labor for the period was $22,000 (2,200 hours x $10 per hour). The direct labor time variance is: A.200 hours unfavorable B.$2,000 unfavorable C.$4,000 favorable D.$2,400 unfavorable1CDQWhat is the manager’s role in a responsibility center?Briefly describe the type of human behavior problems that might arise if budget goals are set too tightly.Give an example of budgetary slack.What behavioral problems are associated with setting a budget too loosely?6CDQ7CDQUnder what circumstances would a static budget be appropriate?How do computerized budgeting systems aid firms in the budgeting process?What is the first step in preparing a master budget?Why should the production requirements set forth in the production budget be carefully coordinated with the sales budget?Why should the timing of direct materials purchases be closely coordinated with the production budget?13CDQ14CDQ15CDQ16CDQ17CDQ18CDQWhat is meant by reporting by the "principle of exceptions," as the term is used in reference to cost control?20CDQHow are standards used in budgetary performance evaluation?a. What are the two variances between the actual cost and the standard cost for direct materials? b. Discuss some possible causes of these variances.23CDQ24CDQ25CDQ26CDQFlexible budget for selling and administrative expenses Fuller Enterprises uses flexible budgets that are based on the following data: Prepare a flexible selling and administrative expenses budget for July for sales volumes of $600,000. $800,000. and $1,000,000. (Use Exhibit 5 as a model.)Static budget vs. flexible budget The production supervisor of the Machining Department for Lei Company agreed to the following monthly static budget for the upcoming year: The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: The Machining Department supervisor has been very pleased with this performance, since actual expenditures have been less than the monthly budget. However, the plant manager believes that the budget should not remain fixed for every month but should "flex" or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows: a.Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?Flexible budget for Fabrication Department Steelcase Inc. is one of the largest manufacturers of office furniture in the United States. In Grand Rapids, Michigan, it produces filing cabinets in two departments: Fabrication and Assembly. Assume the following information for the Assembly Department: Prepare a flexible budget for 10,000, 25,000, and 40,000 filing cabinets for the month of August, similar to Exhibit 5. assuming that inventories are not significant.Sales and production budgets Ultimate Audio Company manufactures two models of speakers. U500 and S1000. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget.Professional fees earned budget Day & Spieth, CPAs, offer three types of services to clients: auditing, tax. and small business accounting. Based on experience and projected growth, the following billable hours have been estimated for the year ending March 31, 20Y6: The average billing rate for staff is $180 per hour, and the average billing rate for partners is $400 per hour. Prepare a professional fees earned budget for Day & Spieth, CPAs, for the year ending March 31, 20Y6, using the following column headings and showing the estimated professional fees by type of service rendered:Professional labor cost budget Based on the data in Exercise 13-5 and assuming that the average compensation per hour for staff is $36 and for partners is $300. prepare a professional labor cost budget for Day & Spieth, CPAs, for the year ending March 31. 20Y6. Use the following column headings:Direct materials purchases budget Zippy's Frozen Pizza Inc. has determined from its production budget the following estimated production volumes for 12" and 16" frozen pizzas for September: There are three direct materials used in producing the two types of pizza. The quantities of direct materials expected to be used for each pizza are as follows: In addition. Zippy's has determined the following information about each material: Prepare September's direct materials purchases budget for Zippy's Frozen Pizza Inc.13.8E13.9EProduction and direct labor cost budgets Levi Strauss & Co. manufactures slacks and jeans under a variety of brand names, such as Dockers* and 501 Jeans*. Slacks and jeans are assembled by a variety of different sewing operations. Assume that the sales budget for Dockers and 501 Jeans shows estimated sales of 120.000 and 250.000 pairs, respectively, for May. The finished goods inventory is assumed as follows: Assume the following direct labor data per 5 pairs of Dockers and 501 Jeans for four different sewing operations: a. Prepare a production budget for February. Prepare the budget in two columns: Dockers and 501 Jeans. b. Prepare the February direct labor cost budget for the four sewing operations, assuming a $15 wage per hour for the inseam and outerseam sewing operations and a $17 wage per hour for the pocket and zipper sewing operations. Prepare the direct labor cost budget in four columns: inseam, outerseam, pockets, and zipper.Factory overhead cost budget Nutty Candy Company budgeted the following costs for anticipated production for August: Prepare a factory overhead cost budget, separating variable and fixed costs. Assume that factory insurance and depreciation are the only factory fixed costs.Cost of goods sold budget The controller of Pueblo Ceramics Inc. wishes to prepare a cost of goods sold budget for April. The controller assembled the following information for constructing the cost goods sold budget: Use the preceding information to prepare a cost of goods sold budget for April.13.13ESchedule of cash collections of accounts receivable Innovative Office Inc. has "cash and carry" customers and credit customers. Innovative Office estimates that 30% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers. 75% pay their accounts in the month of sale, while the remaining 25% pay their accounts in the month following the month of sale. Projected sales for the first three months of 20Y4 are as follows: The Accounts Receivable balance on December 31. 20Y3. was $180,000. Prepare a schedule of cash collections from sales for January. February, and March.Schedule of cash payments Tadpole Learning Systems Inc. was organized on February 28. Projected selling and administrative expenses for each of the first three months of operations are as follows: Depreciation, insurance, and property taxes represent $10,000 of the estimated monthly expenses. The annual insurance premium was paid on February 28, and property taxes for the year will be paid in November. Seventy percent of the remainder of the expenses are expected to be paid in the month in which they are incurred, with the balance to be paid in the following month. Prepare a schedule indicating cash payments for selling and administrative expenses for March, April, and May.Schedule of cash payments Organic Physical Therapy Inc. is planning its cash payments for operations for the three months ending March 31. The Accrued Expenses Payable balance on January 1 is (12.000. The budgeted expenses for the next three months are as follows: Other operating expenses include $2,000 of monthly depreciation expense and $1,000 of monthly insurance expense that was prepaid in the prior year. Of the remaining expenses, 75% are paid in the month in which they are incurred, with the remainder paid in the following month. The Accrued Expenses Payable balance on January 1 relates to the expenses incurred in December. Prepare a schedule of cash payments for operations for January. February, and March.Capital expenditures budget On August 1, 20Y4. the controller of Handy Dan Tools Inc. is planning capital expenditures for the years 20Y5-20Y8. The controller interviewed several Handy Dan executives to collect the necessary information for the capital expenditures budget. Excerpts of the interviews are as follows: Director of Facilities: A construction contract was signed in May 20Y4 for the construction of a new factory building at a contract cost of $9,000,000. The construction is scheduled to begin in 20Y5 and completed in 20Y6. Vice President of Manufacturing: Once the new factor)' building is finished, we plan to purchase $3-6 million in equipment in late 20Y6. I expect that an additional $500,000 will lx-needed early in the following year (20Y7) to test and install the equipment before we can begin production. If sales continue to grow, I expect we'll need to invest another half million in equipment in 20Y8. Vice President of Marketing: We have really been growing lately. I wouldn't be surprised if we need to expand the size of our new factory building in 20YS by at least 25%. Fortunately, we expect inflation to have minimal impact on construction costs over the next four years. Additionally, 1 would expect the cost of the expansion to Ik- proportional to the size of the expansion. Director of Information Systems: We need to upgrade our information systems to wireless network technology. It doesn't make sense to do this until after the new factory building is completed and producing product. During 20Y7, once the factor)' is up and running, we should equip the whole facility with wireless technology. I think it would cost us $400,000 today to install the technology. However, prices have been dropping by 10% per year, so it should be less expensive at a later date. President: I am excited about our long-term prospects. My only short-term concern is financing the $5,000,000 of construction costs on the portion of the new factor)' building scheduled to be completed in 20Y5. Use the interview information above to prepare a capital expenditures budget for Handy Dan Tools Inc. for the years 20Y5-20Y8.Standard product cost Sorrento Furniture Company manufactures unfinished oak furniture. Sorrento uses a standard cost system. The direct labor, direct materials, and factory overhead standards for an unfinished dining room table are as follows: Determine the standard cost per dining room table.13.19EDirect materials variances The following data relate to the direct materials cost for the production of 20,000 automobile tires: a.Determine the price variance, quantity variance, and total direct materials cost variance. b. To whom should the variances be reported for analysis and control?Standard direct materials cost per unit from variance data The following data relating 10 direct materials cost for August of the current year are taken from the records of Happy Tots Inc., a manufacturer of plastic toys: Determine the standard direct materials cost per unit of finished product, assuming that there was no work-in-process inventory at either the beginning or the end of the month.Standard product cost, direct materials variance HJ. Heinz Company uses standards to control its materials costs. Assume that a batch of ketchup (6,000 pounds) has the following standards: The actual materials in a batch may vary from the standard due to tomato characteristics. Assume that the actual quantities of materials for batch H3001 were as follows: a.Determine the standard unit materials cost per pound for a standard batch. b. Determine the total direct materials quantity variance for batch H3001.Direct labor variances The following data relate to direct labor costs for the production of smart tablets. a. Determine the rate variance, time variance, and total direct labor cost variance. b. Discuss what might have caused these variances.13.24EDirect materials and direct labor variances At the beginning of August, Havasu Primers Company budgeted 30,000 books to be printed in August at standard direct materials and direct labor costs as follows: The standard materials price is $0.40 per pound. The standard direct labor rate is $12 per hour. At the end of August, the actual direct materials and direct labor costs were as follows: There were no direct materials price or direct labor rate variances for August. In addition, assume no changes in the direct materials inventory balances in August. Havasu Printers Company actually produced 24.500 units during August. Determine the direct materials quantity variance, the direct labor time variance, and the total variance.13.26EFactory overhead cost variances The following data relate to factory overhead cost for the production of 8,000 computers: If productive capacity of 100% was 10,000 hours and the factory overhead cost budgeted at the level of 8,000 standard hours was $284,000, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $18 per hour.13.28EFactory overhead variance corrections The data related to Danville Sporting Goods Company's factory overhead cost for the production of 40,000 units of product are as follows: Productive capacity at 100% of normal was 100.000 hours, and the factory overhead cost budgeted at the level of 105,000 standard hours was $720,000. Based on these data, the chief cost accountant prepared the following variance analysis: Identify the errors in the factory overhead cost variance analysis.13.30ESales, production, direct materials purchases, and direct labor cost The budge! director of Royal British Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for March is summarized as follows: Instructions Prepare a sales budget for March.Sales, production, direct materials purchases, and direct labor cost The budge! director of Royal British Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for March is summarized as follows: Instructions Prepare a production budget for March.Sales, production, direct materials purchases, and direct labor cost The budge! director of Royal British Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for March is summarized as follows: Instructions 3. Prepare a direct materials purchases budget for March.Sales, production, direct materials purchases, and direct labor cost The budge! director of Royal British Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for March is summarized as follows: Instructions Prepare a direct labor cost budget for March.Budgeted income statement and supporting budgets The budget director of Jupiter Helmets Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for May: Prepare a sales budget for May.Budgeted income statement and supporting budgets The budget director of Jupiter Helmets Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for May: Prepare a production budget for May.Budgeted income statement and supporting budgets The budget director of Jupiter Helmets Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for May: Prepare a direct matria1s purchases budget for May.Budgeted income statement and supporting budgets The budget director of Jupiter Helmets Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for May: Prepare a direct labor cost budget for May.Budgeted income statement and supporting budgets The budget director of Jupiter Helmets Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for May: Prepare a factory overhead cost budget for May.Budgeted income statement and supporting budgets The budget director of Jupiter Helmets Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for May: Prepare a cost of goods sold budget for May. Work in process at the beginning of May is estimated to be $4200. and work in process at the end of May is desired to be $3800.13.2.7PBudgeted income statement and supporting budgets The budget director of Jupiter Helmets Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for May: Prepare a budgeted income statement for May.Cash budget The controller of Shoe Mart Inc. asks you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: The company expects to sell about 20% of its merchandise for cash. Of sales on account, 75% are expected to be; collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $40,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in June, and the annual property taxes are paid in October. Of the remainder of the manufacturing costs, 90% axe expected to be paid in the month in which they are incurred and the balance in the following month. All sales and administrative expenses are paid in the month incurred. Current assets as of January 1 include cash of $45,000, marketable securities of $65,000, and accounts receivable of $290,000 ($240,000 from December sales and $50,000 from Novembersales). Sales on account in November and December were $200,000 and $240,000, respectively. Current liabilities as of January 1 include a $50,000, 8%, 90-day note payable due March 20 and $18,000 of accounts payable incurred in December for manufacturing costs. All selling and administrative expenses are paid in cash in the period the)' are incurred. It is expected that $20,000 in dividends will be received in January. An estimated income tax payment of $15,000 will be made in February. Shoe Mart's regular quarterly dividend of $5,000 is expected to be declared in February and paid in March. Management desires to maintain a minimum cash balance of $35,000. Instructions Prepare a monthly cash budget and supporting schedules for January, February, and March.Cash budget The controller of Shoe Mart Inc. asks you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: The company expects to sell about 20% of its merchandise for cash. Of sales on account, 75% are expected to be; collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $40,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in June, and the annual property taxes are paid in October. Of the remainder of the manufacturing costs, 90% axe expected to be paid in the month in which they are incurred and the balance in the following month. All sales and administrative expenses are paid in the month incurred. Current assets as of January 1 include cash of $45,000, marketable securities of $65,000, and accounts receivable of $290,000 ($240,000 from December sales and $50,000 from Novembersales). Sales on account in November and December were $200,000 and $240,000, respectively. Current liabilities as of January 1 include a $50,000, 8%, 90-day note payable due March 20 and $18,000 of accounts payable incurred in December for manufacturing costs. All selling and administrative expenses are paid in cash in the period the)' are incurred. It is expected that $20,000 in dividends will be received in January. An estimated income tax payment of $15,000 will be made in February. Shoe Mart's regular quarterly dividend of $5,000 is expected to be declared in February and paid in March. Management desires to maintain a minimum cash balance of $35,000. Instructions On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?Direct materials and direct labor variance analysis Faucet Industries Inc. manufactures faucets in a small manufacturing facility. The faucets are made from zinc. Faucet Industries has 60 employees. Each employee presently provides 36 hours of labor per week. Information about a production week is as follows: Instructions Determine (a) the standard cost per unit for direct materials and direct labor; (h) the price variance, quantity variance, and total direct materials cost variance; and (c) the rate variance, time variance, and total direct labor cost variance.Direct materials and direct labor, variance analysis; factory overhead cost variance analysis Route 66 Tire Co. manufactures automobile tires. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 10.000 tires were as follows: Instructions Determine (a) the price variance, quantity variance, and total direct materials cost variance; (b) the rale variance, time variance, and total direct labor cost variance; and (c) Appendix: variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance.13.6.1P13.6.2P13.6.3P13.6.4P13.6.5PStandards for nonmanufacturing expenses The Radiology Department provides imaging services for Northeast Washington Medical Center. One important activity in the Radiology Department is transcribing digitally recorded analyses of images into a written report. The manager of the Radiology Department determined that the average transcriptionist could type 800 lines of a report in an hour. The plan for the first week in July called for 64,000 typed lines to be written. The Radiology Department has two transcriptionists. Each transcriptionist is hired from an employment firm (hat requires temporary employees to be hired for a minimum of a 40-hour week. Transcriptionists are paid $18.00 per hour. The manager offered a bonus if the department could type more than 70,000 lines for the week, without overtime. Due to high service demands, the transcriptionists typed more lines in the first week of July than planned. The actual amount of lines typed in (he first week of July was 70,400 lines, without overtime. As a result, the bonus caused the average transcriptionist hourly rate to increase to $20.00 per hour during the first week in July. Instructions Are there any performance-related issues that the labor time and rate variances fail to consider? Explain.13.7P13.1.1MBA13.1.2MBA13.1.3MBA13.1.4MBA13.1.5MBA13.1.6MBA13.2.1MBA13.2.2MBA13.2.3MBA13.2.4MBAProcess yield Hendrick Motorsports sponsors cars and drivers in the National Association for Stock Car Auto Racing (NASCAR)'s Sprint Cup Series. Performance data for three recent years are as follows: Performance data for Hendrick Motorsports' drivers are as follows: Comment on the results from (1), (2), (3), and (4).13.3.1MBA13.3.2MBA13.3.3MBA13.3.4MBA13.4.1MBA13.4.2MBA13.4.3MBA13.4.4MBA13.5.1MBA13.5.2MBA13.5.3MBA13.5.4MBAUtilization rate Delta Air Lines (DAL) reported the following data (in millions) for three recent years. Delta refers to its utilization rates as passenger load factor. Compute the passenger load factor (utilization rate) for each year.13.6.2MBA13.6.3MBA13.7.1MBA13.7.2MBA13.7.3MBAEthics and professional conduct in business The director of marketing for Truss Industries Inc.. Ellen Knutson, had the following discussion with the company controller. Bud Wyckoff. on February 26 of the current year: Ellen: Bud, it looks like I'm going to spend much less than indicated on my February budget. Butt: I'm glad to hear it. Ellen: Well. I'm not so sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good is that we've delayed an advertising campaign. Once the campaign hits in May. I'm sure my actual expenditures will go up. You see. we are also having our sales convention in May. Having the advertising campaign and the convention at the same time is going to kill my May numbers.13.2.1C13.2.2C13.3.1C13.3.2CObjectives of the master budget Domino's Pizza LLC operates pizza delivery and carryout restaurants. The annual report describes its business as follows: We offer a focused menu of high-quality, value priced pizza with three types of crust (Hand-Tossed, Thin Crust, and Deep Dish), along with buffalo wings, bread sticks, cheesy bread, CinnaStix*, and Coca Cola* products. Our hand-tossed pizza is made from fresh dough produced in our regional distribution centers. We prepare every pizza using real cheese, pizza sauce made from fresh tomatoes, and a choice of high-quality meat and vegetable toppings in generous portions. Our focused menu and use of premium ingredients enable us to consistently and efficiently produce the highest-quality pizza. Over the 41 years since our founding, we have developed a simple, cost-efficient model. We offer a limited menu, our stores are designed for delivery and carry-out, and we do not generally offer dine-in service. As a result, our stores require relatively small, lower-rent locations and limited capital expenditures. How would a master budget support planning, directing, and control for Domino's?13.5.1C13.5.2C13.6C13.7CWhen the manager has the responsibility and authority to make decisions that affect Costs and revenues but no responsibility for or authority over assets invested in the department, the department is called: A. A cost center B. A profit center C. An investment center D. A service departmentThe Accounts Payable Department has expenses of $600,000 and makes 150,000 payments to the various vendors who provide products and services to the divisions. Division A has operating income of $900,000 before service department charges and makes 60,000 payments to vendors. If the Accounts Payable Department is treated as a service department, what is Division A’s operating income? A. $300,000 B. $900,000 C. $660,000 D. $540,000Division 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%Division L of Liddy Co. has a return on investment of 24% and an investment turnover of 1.6. What is the profit margin? A. 6% B. 15% C. 24% D.38%Which approach to transfer pricing uses the price at which the product or service transferred could 1w sold to outside buyers? A. Cost price approach B. Negotiated price approach C. Market price approach D. Standard cost approach1CDQ2CDQ3CDQ4CDQWeyerhaeuser developed a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser’s activities in its central Financial Services Department: • Payroll • Accounts payable • Accounts receivable • Database administration—report preparation For each activity, identify an activity base that could be used to charge user divisions for service.What is the major shortcoming of using operating income as a performance measure for investment centers?7CDQIn a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income?9CDQ10CDQ11CDQ12CDQWhy would standard cost be a more appropriate transfer cost between cost centers than actual cost?14CDQBudget performance reports for cost centers Partially completed budget performance reports for Runquist Company, a manufacturer of air conditioners, are provided below. a.Complete the budget performance reports by determining the correct amounts for the lettered spaces. b.Compose a memo to Jeff Kitchens, president of Meridian Company, explaining the performance of the Production Division for June.Divisional income statements The following data were summarized from the accounting records for Vintage Construction Company for the year ended October 31, 20Y3. Prepare divisional income statements for Vintage Construction Company.14.3E14.4EService department charges In divisional income statements prepared for Iguana Construction Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $42,750, and the Purchasing Department had expenses of $87,600 for the year. The following annual data for the Residential, Commercial, and Government Contract divisions were obtained from corporate records a.Determine the total amount of payroll checks and purchase requisitions processed per year by each division. b.Using the activity base information in (a), determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. c.Why does the Residential Division have a larger service department charge than the other two divisions?Service department charges and activity bases Harris Corporation, a manufacturer of electronics and communications systems, uses a service department charge system to charge profit centers with Computing and Communications Services (CCS) service department costs. The following table identifies an abbreviated list of service categories and activity bases used by the CCS department. The table also includes some assumed cost and activity base quantity information for each service for February. One of the profit centers for Harris Corporation is the Electronics Systems sector. Assume the following information for the Electronics sector: • The sector has 2.000 employees, of whom 60% are office employees. •All the office employees have a phone, and all of them have a computer on the network. • Ninety-five percent of the employees with a computer also have an e-mail account. •The average number of help desk calls for February was 0.45 call per individual with a computer. •There are 80 additional printers, servers, and peripherals on the network beyond the personal computers. a.Determine the service charge rate for the four CCS service categories for February. b.Determine the charges to the Electronics sector for the four CCS service categories for February.Divisional income statements with service department charges Power Sports Company has two divisions. Wholesale and Retail, and two corporate service departments. Tech Support and Accounts Payable. The corporate expenses for the year ended December 31, 20Y7, are as follows The other corporate administrative expenses include officers' salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Accounts Payable Department charges divisions for services, based on the numlver of checks issued. The usage of service by the two divisions is as follows The service department charges of the Tech Support Department and the Accounts Payable Department are considered controllable by the divisions. Corporate administrative expenses arc-not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the twit divisions are as follows Prepare the divisional income statements lor the two divisions.Corrections to service department charges Panda Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared The service department charge rate for the service department costs was based on revenues. The following additional information is available a.Does the operating income for the two divisions accurately measure performance? b.Using service charge rates for service department charges, correct the divisional income statements.Profit center responsibility reporting On-Demand Sports Co. operates two divisions—the Action Sports Division and the Team Sports Division. The following income and expense accounts were provided as of November 30. 20Y1, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded The bases to be used in allocating expenses, together with other essential information, are as follows a.Advertising expense—incurred al headquarters, charged back to divisions on the basis of usage: Action Sports Division. $1,200,000; Team Sports Division, $1,800,000. b. Transportation expense—charged hack lo divisions at a charge rale of $18.50 per bill of lading: Action Sports Division, 14.000 bills of lading; Team Sports Division. 21.400 bills of lading. C. Accounts receivable collection expense—incurred al headquarters, charged back to divisions at a charge rate of $9-00 per invoice: Action Sports Division. 32.000 sales invoices; Team Sports Division, 12.500 sales invoices. d. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Action Sports Division. 120.000 square feet; Team Sports Division. 80.000 square feet. Prepare divisional income statements with two column headings: Action Sports Division and Team Sports Division. Provide supporting schedules for determining service department charges.14.10E14.11E14.12EProfit margin, investment turnover, and return on investment The condensed income statement for the International Division of Valgenti Inc. is as follows (assuming no service department charges) The manager of the International Division is considering ways to increase the return on investment. a.Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the International Division, assuming that $20,000,000 of assets have been invested in the International Division. b.If expenses could be reduced by $240,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the International Division?14.14EDetermining missing items in return on investment and residual income computations The following table presents various rates of return on investment and residual incomes: Determine the missing items, identifying each item by the appropriate letter.14.16E14.17E14.18EBudget performance report for a cost center Sneed Industries Company sells vehicle parts to manufacturers of heavy construction equipment. The Crane Division is organized as a cost center. The budget for the Crane Division for the month ended August 31, 20Y6, is as follows (in thousands): During August, the costs incurred in the Crane Division were as follows: Instructions Prepare a budget performance report for the director of the Crane Division for the month of August.Budget performance report for a cost center Sneed Industries Company sells vehicle parts to manufacturers of heavy construction equipment. The Crane Division is organized as a cost center. The budget for the Crane Division for the month ended August 31, 20Y6, is as follows (in thousands): During August, the costs incurred in the Crane Division were as follows: Instructions For which costs might the director be expected to request supplemental reports?Profit center responsibility reporting A-One Freight Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31. 20Y3. The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company's point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: Divisionmanagement does not control activities related to the shareholder relations department and general corporate officers' salaries. Instructions Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: Air. Rail, and Truck.Profit center responsibility reporting A-One Freight Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31. 20Y3. The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company's point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: Divisionmanagement does not control activities related to the shareholder relations department and general corporate officers' salaries. Instructions Identify the most successful division according to operating income as a percent of revenues. Round to one decimal place.Profit center responsibility reporting A-One Freight Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31. 20Y3. The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company's point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: Divisionmanagement does not control activities related to the shareholder relations department and general corporate officers' salaries. Instructions Provide a recommendation lo the CEO for a belter method for evaluating the performance of the divisions. In your recommendation, identify the major weakness of the present method.14.3.1PDivisional income statements and return on investment analysis High Country Foods Inc. is a diversified food products company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30. 20Y7. are as follows The management of High Country Foods Inc. is evaluating each division as a basis for planning a future expansion of operations. Instructions Using the DuPonl formula, compute the profit margin, investment turnover, and return on investment for each division.14.3.3P14.4.1P14.4.2P14.4.3PEffect of proposals on divisional performance A condensed income statement for the Jet Ski Division of Amazing Rides Inc. for the year ended December 31. 20Y2, is as follows Assume that the Jet Ski Division received no charges from service departments. The president of Amazing Rides has indicated that the division's rate of return on a $15,000,000 investment must be increased to at least 12% 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 J3.000.000 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 $264,000. 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 $480,000. 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 $1,000,000 for the year. Proposal 5? Reduce invested assets by discontinuing the tandem jet ski line. This action would eliminate sales of $2,280,000, cost of goods sold of $1,400,000, and operating expenses of $463,600. Assets of $4,200,000 would be transferred to other divisions at no gain or loss. Instructions Which of the three proposals would meet the required 12% return on investment?'14.4.5P14.5.1P14.5.2P14.5.3P14.5.4P14.6.1P14.6.2P14.6.3P14.6.4P14.6.5PBalanced scorecard American Express Company (AXP) is a major financial services company, noted for its American Express card. Below are some of the performance measures used by the company in its balanced scorecard. For each measure, identify whether the measure best fits the innovation, customer, internal process, or financial dimension of the balanced scorecard.Balanced scorecard Several years ago. United Parcel Service (UPS) believed that the Internet was going to change the parcel delivery market and would require UPS to become a more nimble and customer-focused organization. As a result, UPS replaced its old measurement system, which was 90% oriented toward financial performance, with a balanced scorecard. The scorecard emphasized four "point of arrival" measures, which were 1.Customer satisfaction index—a measure of customer satisfaction. 2.Employee relations index—a measure of employee sentiment and morale. 3.Competitive position—delivery performance relative to competition. Time in transit—the time from order entry to deliver)'. a.Why did UPS introduce a balanced scorecard and nonfinancial measures in its new-performance measurement system? b.Why do you think UPS included a factor measuring employee sentiment?Balanced scorecard Delta Air Lines, Inc. (DAL) provides passenger services throughout the United States and the world. Fifteen Delta metrics and recent initiatives are as follows 1. Using a mobile phone app that allows passengers to monitor their place in standby and first class upgrade lists 2. Improving the efficiency of aircraft maintenance 3. Increasing the number of check-in kiosks at major airports 4. Replacing less fuel-efficient aircraft with newer, more efficient aircraft 5. Reducing turnover of key employees 6. Reducing the number of cancelled flights 7. Investing in oil refinery thai produces jet fuel 8. Offering cash incentive awards to employees 9. Awarding stock options to key employees that can be used over time 10. Increasing passenger revenue per available seat mile 11. Increasing the percentage of on-time arrivals 12. Reducing the number of passenger complaints 13- Reducing the number of lost passenger bags 14. Reducing the number of safety violations 15. Increasing the passenger load percentage Assign each item to one of the four dimensions of the balanced scorecard 1.learning and innovation 2.customer 3.internal process 4.financialBalanced scorecard Costco Wholesale Corporation (COST) operates membership warehouses throughout the United States and the world. Fifteen Costco metrics and recent initiatives are as follows 1. Increasing same store sales 2. Improving safety procedures for warehouse prepared foods 3. Reducing the number of product returns 4. Researching consumer preferences 5. Increasing the number of warehouses with gas pumps 6. Offering training programs for all new employees 7. Offering awards for employees with more the five years of service 8. Improving Costco online consumer experience 9. Increasing gross profit percentage 10. Changing containers from square to round to increase the number of containers that can be shipped on a pallet 11. Developing a company-owned coffee roasting operation 12. Using floor-ready packaging from suppliers 13. Reducing warehouse energy usage for floor lighting 14. Increasing the use of automation to increase efficiencies 15. Increasing the average revenue per member Assign each item to one of the four dimensions of the balanced scorecard 1.learning and innovation 2.customer 3-internal process 4.financial14.5MBA14.1C14.2C14.3.1C14.3.2C14.3.3C14.3.4C14.4.1C14.4.2C14.4.3C14.4.4C14.5.1C14.5.2C14.5.3C14.5.4C14.5.5C14.5.6C