The Sports Equipment Division of Harrington Company is operated as a profit center. Sales for the division were budgeted for 2017 at $900,000. The only variable costs budgeted for the division were cost of goods sold ($440,000) and selling and administrative ($60,000). Fixed costs were budgeted at $100,000 for cost of goods sold, $90,000 for selling and administrative, and $70,000 for noncontrollable fixed costs. Actual results for these items were:
Sales | $880,000 |
Cost of goods sold Variable | 408,000 |
Fixed | 105,000 |
Selling and administrative Variable | 61,000 |
Fixed | 66,000 |
Noncontrollable fixed | 90.000 |
Instructions
(a) Prepare a responsibility report for the Sports Equipment Division for 2017.
(b) Assume the division is an investment center, and average operating assets were $1,000,000. The noncontrollable fixed costs are controllable at the investment center level. Compute
Want to see the full answer?
Check out a sample textbook solutionChapter 10 Solutions
Managerial Accounting: Tools for Business Decision Making
Additional Business Textbook Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Principles of Accounting Volume 1
Managerial Accounting (5th Edition)
Financial Accounting
Financial Accounting (12th Edition) (What's New in Accounting)
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
- Adam Corporation manufactures computer tables and has the following budgeted indirect manufacturing cost information for the next year: If Adam uses the step-down (sequential) method, beginning with the Maintenance Department, to allocate support department costs to production departments, the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its products would be: a. 407,500. b. 422,750. c. 442,053. d. 445,000.arrow_forwardCassara, Inc., had the following quality costs for the years ended December 31, 20X1 and 20X2: At the end of 20X1, management decided to increase its investment in control costs by 40% for each categorys items, with the expectation that failure costs would decrease by 25% for each item of the failure categories. Sales were 12,000,000 for both 20X1 and 20X2. Required: 1. Calculate the budgeted costs for 20X2, and prepare an interim quality performance report. 2. Comment on the significance of the report. How much progress has Cassara made?arrow_forwardNashler Company has the following budgeted variable costs per unit produced: Budgeted fixed overhead costs per month include supervision of 98,000, depreciation of 76,000, and other overhead of 245,000. Required: 1. Prepare a flexible budget for all costs of production for the following levels of production: 160,000 units, 170,000 units, and 175,000 units. 2. What is the per-unit total product cost for each of the production levels from Requirement 1? (Round each unit cost to the nearest cent.) 3. What if Nashler Companys cost of maintenance rose to 0.22 per unit? How would that affect the unit product costs calculated in Requirement 2?arrow_forward
- At the beginning of the period, the Fabricating Department budgeted direct labor of 72,000 and equipment depreciation of 18,500 for 2,400 hours of production. The department actually completed 2,350 hours of production. Determine the budget for the department, assuming that it uses flexible budgeting.arrow_forwardMesa Aquatics, Inc. estimated direct labor hours as 1,900 in quarter 1, 2,000 in quarter 2.2,200 in quarter 3, and 1,800 in quarter 4. a sales and administration budget using the information provided.arrow_forwardKelly Gray, production manager, was upset with the latest performance report, which indicated that she was 100,000 over budget. Given the efforts that she and her workers had made, she was confident that they had met or beat the budget. Now, she was not only upset but also genuinely puzzled over the results. Three itemsdirect labor, power, and setupswere over budget. The actual costs for these three items follow: Kelly knew that her operation had produced more units than originally had been budgeted, so more power and labor had naturally been used. She also knew that the uncertainty in scheduling had led to more setups than planned. When she pointed this out to John Huang, the controller, he assured her that the budgeted costs had been adjusted for the increase in productive activity. Curious, Kelly questioned John about the methods used to make the adjustment. JOHN: If the actual level of activity differs from the original planned level, we adjust the budget by using budget formulasformulas that allow us to predict what the costs will be for different levels of activity. KELLY: The approach sounds reasonable. However, Im sure something is wrong here. Tell me exactly how you adjusted the costs of labor, power, and setups. JOHN: First, we obtain formulas for the individual items in the budget by using the method of least squares. We assume that cost variations can be explained by variations in productive activity where activity is measured by direct labor hours. Here is a list of the cost formulas for the three items you mentioned. The variable X is the number of direct labor hours: Labor cost = 10X Power cost = 5,000 + 4X Setup cost = 100,000 KELLY: I think I see the problem. Power costs dont have a lot to do with direct labor hours. They have more to do with machine hours. As production increases, machine hours increase more rapidly than direct labor hours. Also, ... JOHN: You know, you have a point. The coefficient of determination for power cost is only about 50 percent. That leaves a lot of unexplained cost variation. The coefficient for labor, however, is much betterit explains about 96 percent of the cost variation. Setup costs, of course, are fixed. KELLY: Well, as I was about to say, setup costs also have very little to do with direct labor hours. And I might add that they certainly are not fixedat least not all of them. We had to do more setups than our original plan called for because of the scheduling changes. And we have to pay our people when they work extra hours. It seems as if we are always paying overtime. I wonder if we simply do not have enough people for the setup activity. Supplies are used for each setup, and these are not cheap. Did you build these extra costs of increased setup activity into your budget? JOHN: No, we assumed that setup costs were fixed. I see now that some of them could vary as the number of setups increases. Kelly, let me see if I can develop some cost formulas based on better explanatory variables. Ill get back with you in a few days. Assume that after a few days work, John developed the following cost formulas, all with a coefficient of determination greater than 90 percent: Labor cost = 10X; where X = Direct labor hours Power cost = 68,000 + 0.9Y; where Y = Machine hours Setup cost = 98,000 + 400Z; where Z = Number of setups The actual measures of each of the activity drivers are as follows: Required: 1. Prepare a performance report for direct labor, power, and setups using the direct-labor-based formulas. 2. Prepare a performance report for direct labor, power, and setups using the multiple cost driver formulas that John developed. 3. Of the two approaches, which provides the most accurate picture of Kellys performance? Why? 4. After reviewing the approach to performance measurement, a consultant remarked that non-value-added cost trend reports would be a much better performance measurement approach than comparing actual costs with budgeted costseven if activity flexible budgets were used. Do you agree or disagree? Explain.arrow_forward
- Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 20X1: During 20X1, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred: Marston applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates. Required: 1. Prepare a performance report for Marstons manufacturing costs in the current year. 2. Assume that one of the products produced by Marston is budgeted to use 10,000 direct labor hours, 15,000 machine hours, and 500 moves and will be produced in five batches. A total of 10,000 units will be produced during the year. Calculate the budgeted unit manufacturing cost. 3. One of Marstons managers said the following: Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the previous budget really needs to provide more detailed information. For example, I know that the moving materials activity involves the use of forklifts and operators, and this information is lost when only the total cost of the activity for various levels of output is reported. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at 10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of 30,000 per year. Also, I know that fuel costs about 0.25 per move. Assuming that these are the only three items, expand the detail of the flexible budget for moving materials to reveal the cost of these three resource items for 20,000 moves and 40,000 moves, respectively. Based on these comments, explain how this additional information can help Marston better manage its costs. (Especially consider how activity-based budgeting may provide useful information for non-value-added activities.)arrow_forwardHandbrain Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 2,000 direct labor hours. The total indirect labor is budgeted to be 200,000. Time records from indirect labor employees revealed that they spent 30% of their time setting up production runs and 70% of their time supporting actual production. The following information about cell phones and tablet PCs was determined from the corporate records: a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base. b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activitiesone for setup and the other for production support. c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. d. Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)?arrow_forwardBonita Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2020, and relevant budget data are as follows. Actual Comparison with Budget Sales $1,399,000 $101,000 favorable Variable cost of goods sold 680,000 55,000 unfavorable Variable selling and administrative expenses 124,000 25,000 unfavorable Controllable fixed cost of goods sold 171,000 On target Controllable fixed selling and administrative expenses 81,000 On target Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount. (a) Prepare a responsibility report for the Home Division. (List variable costs before fixed costs. Round ROI to 2 decimal places, e.g. 1.57%.) BONITA COMPANYHome DivisionResponsibility ReportFor the Year Ended…arrow_forward
- Bonita Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2020, and relevant budget data are as follows. Actual Comparison with Budget Sales $1,399,000 $101,000 favorable Variable cost of goods sold 680,000 55,000 unfavorable Variable selling and administrative expenses 124,000 25,000 unfavorable Controllable fixed cost of goods sold 171,000 On target Controllable fixed selling and administrative expenses 81,000 On target Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount. Compute the expected ROI in 2020 for the Home Division, assuming the following independent changes to actual data. (Round ROI to 2 decimal places, e.g. 1.57%.) The expected ROI (1) Variable cost of goods sold is…arrow_forwardOathall Ltd, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available: £/unit Direct materials 4 Direct labour 15 19 Selling price 50 Fixed production overheads are budgeted to be £300,000 per month and are absorbed on an activity level of 100,000 units per month. For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units. Fixed selling costs of £150,000 per month will need to be included in the budget as will the variable selling costs of £2 per unit. There are no opening stocks. Required: Prepare the budgeted profit and loss account for a month for Oathall Ltd using absorption costing. Clearly show…arrow_forwardArmati, Inc., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, Inc., had the following budgeted data: Unit sales for 2011 26,000 Unit production for 2011 26,000 Budgeted fixed costs for 2011: $2,900 Budgeted variable costs per unit: Direct materials $0.15 Direct labor $0.29 The following actually occurred: Actual unit sales for 2011 24,000 Actual unit production for 2011 28,000 Actual fixed costs for 2011: $2,950 Actual variable costs: $10,650 The flexible budget variance for total cost for 2011 is A. $1,280 U. B. $1,620 F. C. $1,670 F. D. $50 U.arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College