1.
Discuss the benefits from segment reporting for an organization. Evaluate segment reporting with respect to variable-costing basis against absorption-costing.
1.
Explanation of Solution
Segment reporting is beneficial for an organization because segmental reporting focuses on the profitability of each segment. Segment reporting aids in identifying the unprofitable segments that are lost in the overall profit of the company as a whole.
Segmental reporting is better when carried out on variable basis rather than an absorption costing because variable costing does not allow a manager to increase profits by producing for inventory. Moreover, the contribution that a segment makes to earn profit can easily be identified in the variable-costing income statements. Under absorption costing, it is difficult to determine whether an unprofitable segment makes a contribution to profit or not.
2.
Determine the contribution margin, contribution margin volume, and sales mix variances.
2.
Explanation of Solution
Contribution margin variance: Contribution margin variance reflects difference between the actual contribution margin and budgeted contribution margin. It is computed using the given formula:
Determine the contribution margin:
Contribution margin volume variance: Contribution margin volume variance reflects difference between the actual quantity sold and the budgeted quantity sold multiplied by the budgeted average unit contribution margin. It is computed using the given formula:
Determine the contribution margin volume variance:
Given, the actual units sold are 46,000 units
Working note 1: Calculate the budgeted average unit contribution margin:
Sales mix variance: The sales mix represents the part of total sales generated by each product. Sales mix variance is the summation of change in units for each product multiplied by the difference between the budgeted contribution margin and the budgeted average unit contribution margin. It is computed using the given formula:
Determine the sales mix variance for upscale lighting data:
Determine the sales mix variance for mid-range lighting data:
Determine the sales mix variance for timing device data:
Determine the sales mix variance:
3.
Describe the reasons behind the variances.
3.
Explanation of Solution
Since, the actual contribution margin is higher than budgeted the contribution margin variance is favorable. This happened due to the change in sales mix. A higher percentage of sales were possible due to the higher contribution margin of upscale lights, and a lower percentage of sales happened due to the lower contribution margin of mid-range lights.
It is to be noted that fewer units (46,000) were sold than budgeted (50,000). Therefore, it is the sales mix change that led to the higher actual contribution margin.
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Chapter 18 Solutions
Cornerstones of Cost Management (Cornerstones Series)
- Greiner Company makes and sells high-quality glare filters for microcomputer monitors. John Craven, controller, is responsible for preparing Greiners master budget and has assembled the following data for the coming year. The direct labor rate includes wages, all employee-related benefits, and the employers share of FICA. Labor saving machinery will be fully operational by March. Also, as of March 1, the companys union contract calls for an increase in direct labor wages that is included in the direct labor rate. Greiner expects to have 5,600 glare filters in inventory on December 31 of the current year, and has a policy of carrying 35 percent of the following month's projected sales in inventory. Information on the first four months of the coming year is as follows: Required: 1. Prepare the following monthly budgets for Greiner Company for the first quarter of the coming year. Be sure to show supporting calculations. a. Production budget in units b. Direct labor budget in hours c. Direct materials cost budget d. Sales budget 2. Calculate the total budgeted contribution margin for Greiner Company by month and in total for the first quarter of the coming year. Be sure to show supporting calculations. (CMA adapted)arrow_forwardMacalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments—Molding and Assembly. The Molding Department employs 20 people, and the Assembly Department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the Molding Department are budgeted at $190,000, and the Assembly Department costs are budgeted at $80,000. Two support departments—Engineering and General Factory—directly support the two production departments and have budgeted costs of $216,000 and $370,000, respectively. The production departments' overhead rates cannot be determined until the support departments' costs are properly allocated. The following schedule reflects the use of the Engineering Department's and General Factory Department's output by the various departments. Engineering General Factory Molding Assembly Engineering hours — 2,000 2,000 8,000 Square feet…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
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- Lonsdale Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated budgeted activity costs and activity bases are as follows: Activity BudgetedActivity Cost Activity Base Casting $640,000 Machine hours Assembly 189,000 Direct labor hours Inspecting 44,100 Number of inspections Setup 50,050 Number of setups Materials handling 44,000 Number of loads Corporate records were obtained to estimate the amount of activity to be used by the two products. The estimated activity-base usage quantities and units produced follow: Activity Base Entry Dining Total Machine hours 6,320 13,680 20,000 Direct labor hours 6,300 4,200 10,500 Number of inspections 440 610 1,050 Number of setups 330 220 550 Number of loads 220 780 1,000 Units produced 2,600 4,900 7,500 This information has been collected in the Microsoft Excel…arrow_forwardHollins, Inc., a manufacture of computer chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2014. Activity Cost Pools Estimated Overhead Expected use of Cost Drivers per Activity Ordering and receiving Etching Soldering $90,000 480,000 1,760,000 12,000 orders 60,000 machine hours 440,000 labor hours For 2014, the company had 11,000 orders and used 50,000 machine hours, and labor hours totaled 500,000. Required: What is the total overhead applied?arrow_forwardFire King manufactures safes- mobile safes, and walk-in stationary bank safes. As part of its annual budgeting process, Custer is analyzing the profitability of its two products. Part of this analysis involves estimating the amount of overhead to be allocated to each product line. The following information relates to overhead. (a) The total estimated manufacturing overhead was $235,000. Under traditional costing (which assigns overhead on the basis of direct-labor hours), what amount of manufacturing overhead costs are assigned to One mobile safe? The total estimated manufacturing overhead of $235,000 was comprised of $150,000 for material-handling costs and $85,000 for purchasing activity costs. Under activity-based costing (ABC): (b) What amount of material handling costs are assigned to One mobile safe? (c) What amount of purchasing activity costs are assigned to One mobile safe?arrow_forward
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- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub