College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
22nd Edition
ISBN: 9781305666160
Author: James A. Heintz, Robert W. Parry
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 25, Problem 1MYW
To determine
Draft a memo describing the issues regarding the contributions of the departments and the decision to discontinue a department.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Esme Company’s management is trying to decide whether to eliminate Department Z, which has produced low profits or losses for several years. The company’s departmental income statements show the following.
Managerial Accounting: An Overview
Ethics and the Manager
Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodelling of its stores to attract a more upscale clientele.
Before finalizing these plans, two stores were remodelled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores.
While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.
Required:
1. According to the IMA’s Statement of Ethical Professional Practice,…
6. Person X has managed a downtown store in a major metropolitan city for several years. The firm has ten stores in varying locations. In the past, senior management noticed Person X's work and he has received very good annual evaluations for his management of the store. \\nThis year his store has generated steady growth in sales, but earnings have been deteriorating. After examining the monthly performance report generated by the company budgeting department, he noticed that increasing fixed costs is causing the decrease in earnings. \\nAdministrative corporate costs, primarily fixed costs, are allocated to individual stores each month based on actual sales for that month. Two of these stores are currently growing at a rapid pace, while four other stores are having operating difficulties. \\n\\nRequired:\\nFrom the information presented, what do you think is the cause of Person X's reported decrease in earnings? How can this be corrected?
Chapter 25 Solutions
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Ch. 25 - A department that incurs costs and generates...Ch. 25 - Departmental gross profit is the difference...Ch. 25 - Prob. 3TFCh. 25 - Direct expenses are operating expenses incurred...Ch. 25 - Departmental direct operating margin is the...Ch. 25 - Prob. 1MCCh. 25 - The difference between a departments net sales and...Ch. 25 - Prob. 3MCCh. 25 - The difference between a departments gross profit...Ch. 25 - The difference between a departments gross profit...
Ch. 25 - Prob. 1CECh. 25 - Prob. 2CECh. 25 - Prob. 3CECh. 25 - Prob. 1RQCh. 25 - Prob. 2RQCh. 25 - Prob. 3RQCh. 25 - Prob. 4RQCh. 25 - Prob. 5RQCh. 25 - Prob. 6RQCh. 25 - Prob. 7RQCh. 25 - Prob. 8RQCh. 25 - Distinguish between departmental gross profit,...Ch. 25 - Prob. 10RQCh. 25 - GROSS PROFIT SECTION OF DE PART MENT AL INCO ME ST...Ch. 25 - ALLOCATING OPERATING EXPENSESQUARE FEET Weaverling...Ch. 25 - ALLOCATING OPERATING EXPENSERELATIVE NET SALES...Ch. 25 - ALLOCATING OPERATING EXPENSEMILES DRIVEN Mercado...Ch. 25 - COMPUTING OPERATING INCOME The sales, cost of...Ch. 25 - Prob. 6SEACh. 25 - INCOME STATEMENT WITH DEPART MENTAL GROSS PROFIT...Ch. 25 - INCOME STATE MENT WITH DEPARTMENTAL OPERATING...Ch. 25 - INCOME STATEMENT WITH DEPART MENTAL DIRECT...Ch. 25 - Prob. 10SPACh. 25 - GROSS PROFIT SECTION OF DEPART MENTAL INCOME...Ch. 25 - Prob. 2SEBCh. 25 - ALLOCATING OPERATING EXPENSERELATIVE NET SALES...Ch. 25 - ALLOCATING OPERATING EXPENSEMILES DRIVEN Herbert...Ch. 25 - Prob. 5SEBCh. 25 - Prob. 6SEBCh. 25 - INCOME STATEMENT WITH DEPART MENTAL GROSS PROFIT...Ch. 25 - Prob. 8SPBCh. 25 - Prob. 9SPBCh. 25 - Prob. 10SPBCh. 25 - Prob. 1MYWCh. 25 - Prob. 1ECCh. 25 - MASTERY PROBLEM Bobs Acme Supermarket has been in...Ch. 25 - CHALLENGE PROBLEM This problem challenges you to...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- CHALLENGE PROBLEM This problem challenges you to apply your cumulative accounting knowledge to move a step beyond the material in the chapter. The results of the operating activities of Kobe Company for the current year are as follows: Based on these results, Kobe is considering discontinuing department C and establishing a new department D. The estimated revenues and expenses of the new department are as follows: In addition, the proposed change will cause total indirect operating expenses to increase by 22,000. REQUIRED Determine whether Kobe should discontinue department C and establish department D.arrow_forwardKent Tessman, manager of a Dairy Products Division, was pleased with his divisions performance over the past three years. Each year, divisional profits had increased, and he had earned a sizable bonus. (Bonuses are a linear function of the divisions reported income.) He had also received considerable attention from higher management. A vice president had told him in confidence that if his performance over the next three years matched his first three, he would be promoted to higher management. Determined to fulfill these expectations, Kent made sure that he personally reviewed every capital budget request. He wanted to be certain that any funds invested would provide good, solid returns. (The divisions cost of capital is 10 percent.) At the moment, he is reviewing two independent requests. Proposal A involves automating a manufacturing operation that is currently labor intensive. Proposal B centers on developing and marketing a new ice cream product. Proposal A requires an initial outlay of 250,000, and Proposal B requires 312,500. Both projects could be funded, given the status of the divisions capital budget. Both have an expected life of six years and have the following projected after-tax cash flows: After careful consideration of each investment, Kent approved funding of Proposal A and rejected Proposal B. Required: 1. Compute the NPV for each proposal. 2. Compute the payback period for each proposal. 3. According to your analysis, which proposal(s) should be accepted? Explain. 4. Explain why Kent accepted only Proposal A. Considering the possible reasons for rejection, would you judge his behavior to be ethical? Explain.arrow_forwardBill Fremont, division controller and CMA, was upset by a recent memo he received from the divisional manager, Steve Preston. Bill was scheduled to present the divisions financial performance at headquarters in one week. In the memo, Steve had given Bill some instructions for this upcoming report. In particular, Bill had been told to emphasize the significant improvement in the divisions profits over last year. Bill, however, didnt believe that there was any real underlying improvement in the divisions performance and was reluctant to say otherwise. He knew that the increase in profits was because of Steves conscious decision to produce more inventory. In an earlier meeting, Steve had convinced his plant managers to produce more than they knew they could sell. He argued that by deferring some of this periods fixed costs, reported profits would jump. He pointed out two significant benefits. First, by increasing profits, the division could exceed the minimum level needed so that all the managers would qualify for the annual bonus. Second, by meeting the budgeted profit level, the division would be better able to compete for much-needed capital. Bill objected but had been overruled. The most persuasive counterargument was that the increase in inventory could be liquidated in the coming year as the economy improved. Bill, however, considered this event unlikely. From past experience, he knew that it would take at least two years of improved market demand before the productive capacity of the division was exceeded. Required: 1. Discuss the behavior of Steve Preston, the divisional manager. Was the decision to produce for inventory an ethical one? 2. What should Bill Fremont do? Should he comply with the directive to emphasize the increase in profits? If not, what options does he have? 3. Chapter 1 listed ethical standards for management accountants. Identify any standards that apply in this situation.arrow_forward
- Dantrell Palmer has just been appointed manager of Kirchner Glass Products Division. He has two years to make the division profitable. If the division is still showing a loss after two years, it will be eliminated, and Dantrell will be reassigned as an assistant divisional manager in another division. The divisional income statement for the most recent year is as follows: Upon arriving at the division, Dantrell requested the following data on the divisions three products: He also gathered data on a proposed new product (Product D). If this product is added, it would displace one of the current products; the quantity that could be produced and sold would equal the quantity sold of the product it displaces, although demand limits the maximum quantity that could be sold to 20,000 units. Because of specialized production equipment, it is not possible for the new product to displace part of the production of a second product. The information on Product D is as follows: Required: 1. Prepare segmented income statements for Products A, B, and C. 2. Determine the products that Dantrell should produce for the coming year. Prepare segmented income statements that prove your combination is the best for the division. By how much will profits improve given the combination that you selected? (Hint: Your combination may include one, two, or three products.)arrow_forwardIn 20x5, Major Company initiated a full-scale, quality improvement program. At the end of the year, Jack Aldredge, the president, noted with some satisfaction that the defects per unit of product had dropped significantly compared to the prior year. He was also pleased that relationships with suppliers had improved and defective materials had declined. The new quality training program was also well accepted by employees. Of most interest to the president, however, was the impact of the quality improvements on profitability. To help assess the dollar impact of the quality improvements, the actual sales and the actual quality costs for 20x4 and 20x5 are as follows by quality category: All prevention costs are fixed (by discretion). Assume all other quality costs are unit-level variable. Required: 1. Compute the relative distribution of quality costs for each year and prepare a pie chart. Do you believe that the company is moving in the right direction in terms of the balance among the quality cost categories? Explain. 2. Prepare a one-year trend performance report for 20x5 (compare the actual costs of 20x5 with those of 20x4, adjusted for differences in sales volume). How much have profits increased because of the quality improvements made by Major Company? 3. Estimate the additional improvement in profits if Major Company ultimately reduces its quality costs to 2.5 percent of sales revenues (assume sales of 10 million).arrow_forwardEthics and Revenue Recognition Alan Spalding is CEO of a large appliance wholesaler. Alan is under pressure from Wall Street Analysts to meet his aggressive sales revenue growth projections. Unfortunately, near the end of the year he realizes that sales must dramatically improve if his projections are going to be met. To accomplish this objective, he orders his sales force to contact their largest customers and offer them price discounts if they buy by the end of the year. Alan also offered to deliver the merchandise to a third-party warehouse with whom the customers could arrange delivery when the merchandise was needed. Required: Do you believe that revenue from these sales should be recognized in the current year? Why or why not?arrow_forward
- Glencoe First National Bank operated for years under the assumption that profitability can be increased by increasing dollar volumes. Historically, First Nationals efforts were directed toward increasing total dollars of sales and total dollars of account balances. In recent years, however, First Nationals profits have been eroding. Increased competition, particularly from savings and loan institutions, was the cause of the difficulties. As key managers discussed the banks problems, it became apparent that they had no idea what their products were costing. Upon reflection, they realized that they had often made decisions to offer a new product which promised to increase dollar balances without any consideration of what it cost to provide the service. After some discussion, the bank decided to hire a consultant to compute the costs of three products: checking accounts, personal loans, and the gold VISA. The consultant identified the following activities, costs, and activity drivers (annual data): The following annual information on the three products was also made available: In light of the new cost information, Larry Roberts, the bank president, wanted to know whether a decision made two years ago to modify the banks checking account product was sound. At that time, the service charge was eliminated on accounts with an average annual balance greater than 1,000. Based on increases in the total dollars in checking, Larry was pleased with the new product. The checking account product is described as follows: (1) checking account balances greater than 500 earn interest of 2 percent per year, and (2) a service charge of 5 per month is charged for balances less than 1,000. The bank earns 4 percent on checking account deposits. Fifty percent of the accounts are less than 500 and have an average balance of 400 per account. Ten percent of the accounts are between 500 and 1,000 and average 750 per account. Twenty-five percent of the accounts are between 1,000 and 2,767; the average balance is 2,000. The remaining accounts carry a balance greater than 2,767. The average balance for these accounts is 5,000. Research indicates that the 2,000 category was by far the greatest contributor to the increase in dollar volume when the checking account product was modified two years ago. Required: 1. Calculate rates for each activity. 2. Using the rates computed in Requirement 1, calculate the cost of each product. 3. Evaluate the checking account product. Are all accounts profitable? Compute the average annual profitability per account for the four categories of accounts described in the problem. What recommendations would you make to increase the profitability of the checking account product? (Break-even analysis for the unprofitable categories may be helpful.)arrow_forwardCommunication The Norse Division of Gridiron Concepts Inc. experienced significant revenue and profit growth from 20Y4 to 20Y6 as shown in the following divisional income statements: There are no support department allocations, and the division operates as an investment center that must maintain a 15% return on invested assets. Determine the profit margin, investment turnover, and return on investment for the Norse Division for 20Y420Y6. Based on your computations, write a brief memo to the president of Gridiron Concepts Inc., Knute Holz, evaluating the divisions performance.arrow_forwardEthics and the ManagerRichmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodelling of its stores to attract a more upscale clientele.Before finalizing these plans, two stores were remodelled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.1. Managerial Accounting2. Would it be easy for Perlman to take the ethical action in this situation?arrow_forward
- Ethics and the Manager Richmond. Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports. Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses. Required: 1. According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Perlman not…arrow_forwardYou have recently been appointed as the chief executive officer (CEO) of a medium sized, decentralized, national, multi-product manufacturing and marketing corporation, which employs over 6,000 people. While revenues have remained constant over the last five years, net income has decreased by over 50% in this period. As a result of this decline in profitability, the share price has decreased by 60%. Required Identify three management accounting techniques/tools that you will instruct your staff to investigate. For each technique/tool identified, explain specific benefits you hope to realize. Note that to state that profitability will improve is too general; rather, you should explain how the technique leads to this improvement. Be thoughtful and practical in your discussions and be mindful of the type of company of which you are the CEO.arrow_forwardProfessional ethics and end-of-year actions. Phoenix Press produces consumer magazines. The house and home division, which sells home-improvement and home-decorating magazines, has seen a 20% reduction in operating income over the past 9 months, primarily due to an economic recession and a depressed consumer housing market. The division’s controller, Sophie Gellar, has felt pressure from the CFO to improve her division’s operating results by the end of the year. Gellar is considering the following options for improving the division’s performance by year-end: Cancelling two of the division’s least profitable magazines, resulting in the layoff of 25 employees. Selling the new printing equipment that was purchased in January and replacing it with discarded equipment from one of the company’s other divisions. The previously discarded equipment no longer meets current safety standards. Recognizing unearned subscription revenue (cash received in advance for magazines that will be delivered…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
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 Learning
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
HR Basics: Compensation; Author: HR Basics: Compensation;https://www.youtube.com/watch?v=wZoRId6ADuo;License: Standard Youtube License