184) Use the Hamilton Company’s investment center information below to calculate (a) return on total
investment and (b) investment center residual income.
Net Income…………………… $315,900
Average Invested Assets…….. $2,100,000
Target Net Income…………… 6% of division assets
185) City Park College allocates administrative costs to its teaching departments based on the number of
students enrolled, while maintenance and utilities are allocated based on square feet of classrooms.
Based on the information below, what is the total amount of expenses allocated to each department
(rounded to the nearest dollar) if administrative costs for the college were $180,000, maintenance
expenses were $70,000, and utilities were $85,000?
Teaching
Department
Students
Size of
Classroom
Electronics
117
900 sq. ft.
Automotive
156
750 sq. ft.
Computers
429
1,200 sq. ft.
Plumbing
78
150 sq. ft.
Allocation of Expenses to Departments
Department A
Department B
Department 1
Department 2
Total direct
1
2
Sales
Cost of Square
Orders
Department
Sales
Goods Sold Footage
Issued
186) Arkansas Toys, a retail store, has three sales departments supported by two service departments. Cost
and operational data for each department follow:
Purch.
1
$92,160
$36,864
1,728
1,260
2
69,120
32,832
3,024
1,680
3
80,640
32,256
1,296
2,310
Service
Departments
Allocation Basis
Cost
Advertising………..
Sales
$10,000
Purchasing…………
No. of purchase orders issued
12,000
Determine the service department expenses to be allocated to Sales Department 1 for (round answers
to whole dollars):
Advertising ________
Purchasing ________
187) Chancellor Company is divided into four departments. Departments A and B are service departments
and Departments 1 and 2 are operating (production) departments. The services of the two service
departments are used by the other departments as follows:
Dept. A
Dept. B
Dept. 1
Dept. 2
Services of:
Department A…………
50%
20%
30%
Department B…………
40%
60%
Direct costs incurred by each department
$60,000
$50,000
$70,000
$80,000
Complete the following table:
4
Total direct
Department expenses..
$60,000
$50,000
$ 70,000
$ 80,000
Service department
expenses
Department A…………
Subtotal……………………
Department B…………
Total………………………..
144
188) Sturdivant Fasteners, Co. uses a traditional allocation of overhead based on direct labor hours
system. The manager has accumulated the following information on engineering changes, which are
indirect cost of their products, for two of the company’s major products:
Automotive
Fasteners
Computer
Fasteners
Total units produced
5,000
2,500
Cost per engineering change
$400
$ 400
Number of engineering changes
5
25
Direct labor hours per unit
4
4
Compute the cost per unit using: The traditional two-stage allocation of the costs of engineering
changes based on direct labor hours.
189) Nesbit Co. has two operating (production) departments supported by a number of service
departments. The following information was collected for a recent period:
Direct Costs
Indirect
Cost
Machining
Department
Assembly
Department
Salaries
$122,400
$ 85,700
$36,700
Insurance
20,200
11,000
5,500
Utilities
23,900
13,900
2,000
Depreciation
20,700
11,500
13,800
Maintenance
7,000
4,700
29,400
Office expenses
-0-
-0–
71,100
Cost of goods sold
327,600
121,200
Indirect costs are allocated as follows: salaries on the basis of sales, office expenses on the basis of
the number of employees, and all other costs on the basis of square footage. Additional information
about the production departments follows:
Square
Footage
Number of
Employees
Machining
14,535
78
Assembly
4,845
52
Sales for the Machining Department are $724,404 and sales for the Assembly Department are
$356,796. Determine the departmental contribution to overhead and the departmental net income for
each production department.
190) Holliday, Inc., operates a retail store with two departments, A and B. Its departmental income
statement for the current year follows:
Holliday, Inc.Departmental Income Statement for Year Ended December 31
Dept. A
Dept. B
Combined
Sales
$180,000
$200,000
$380,000
Direct expenses
129,900
142,870
272,770
Contributions to overhead
$ 50,100
$ 57,130
$107,230
Indirect expenses:
Depreciation—Building
10,000
11,760
21,760
Maintenance
1,600
1,700
3,300
Utilities
6,200
6,320
12,520
Office expenses
1,800
2,000
3,800
Total indirect expenses
$ 19,600
$ 21,780
$ 41,380
Net income
$ 30,500
$ 35,350
$ 65,850
Holliday allocates building depreciation, maintenance, and utilities on the basis of square footage.
Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The proposed Department
C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The
company owns its building. Opening Department C would redistribute the square footage to each
department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600. Increases in indirect expenses would
include: maintenance, $500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of operations for
the three sales departments. (Round amounts to the nearest whole dollar.)
Dept. A
Dept. B
Dept. C
Combined
Sales
$180,000
$200,000
Direct expenses
129,900
142,870
Contributions to
overhead
$ 50,100
$ 57,130
Indirect expenses
Depreciation–building
Maintenance
Utilities
Office expenses
Total indirect expenses
Net income
191) Williams Co. operates three separate departments (R, S, T). The data below is provided for the
current year:
Total Sales…………………… $120,000 ($40,000 from each department)
Cost of Goods Sold…………. $ 80,000 (50% from R; 25% from S; 25% from T)
Direct Expense……………… $ 26,000 ($6,000 from R; $12,000 from S; $8,000 from T)
Indirect Expenses……………… $ 9,000
Required:
Prepare an income statement showing the departmental contributions to overhead for the current
year.
192) The following data is available for the Janitorial Services Department of Glitterol Co.
Revenues
$216,000
Cost of Sales
168,000
Expenses:
Supplies-Direct
12,000
Salaries-Indirect Allocated
34,000
Rent-Direct
8,000
Rent-Indirect Allocated
4,500
Required: Calculate departmental contribution to overhead for the Janitorial Services Department,
including the department’s contribution as a percentage of revenues.
193) The Linens Department of the Krafton Department Store had sales of $282,000, cost of goods sold
of $173,500, indirect expenses of $19,875, and direct expenses of $41,250 for the current period.
What is the Linens Department’s contribution to overhead as a percent of sales?
194) Marsha Hansen, the manager of the Flint Plant of the Michigan Company is responsible for all of
the plant’s costs except her own salary. There are two operating departments within the plant,
Departments A and B. Each department has its own manager. There is also a maintenance
department that provides services equally to the two operating departments. The following
information is available.
A
Budget
B
Total
A
Actual
B
Total
Employee wages
$3,500
$4,000
$7,500
$3,200
$4,700
$7,900
Department
Manager’s salary
800
800
1,600
800
800
1,600
Supplies
750
600
1,350
700
590
1,290
Building rent
1,500
1,500
3,000
1,400
1,400
2,800
Utilities
300
300
600
375
375
750
Maintenance
3,300
3,300
6,600
3,000
3,000
6,000
Totals
$10,150
$10,500
$20,650
$9,475
$10,865
$20,340
Department managers are responsible for the wages and supplies in their department. They are not
responsible for their own salary. Building rent, utilities, and maintenance are allocated to each
department based on square footage.
Required: Complete the responsibility accounting performance reports below that list costs
controllable by the manager of Department A, the manager of Department B, and the manager of the
Flint plant.
Manager, Flint Plant
Budgeted
amount
Actual
amount
Over
(under)
budget
Controllable costs:
Manager, Department A
Controllable costs:
150
Manager, Department B
Controllable Costs:
195) Franklin Co. has three departments: purchasing, human resources, and assembly. In a recent month
the three departments incurred two shared indirect expenses. The amounts of the indirect expenses
and the bases used to allocate them follow. Use this information to allocate each of the two indirect
expenses across the three departments using the tables provided below.
Indirect Expense
Cost
Allocation Base
Supervision
$85,000
Number of employees
Utilities and Insurance
38,000
Square feet occupied
Total
123,000
Departmental data for the company’s recent reporting period follow.
Department
Employees
Square Feet
Purchasing
10
15,000
Human Resources
6
10,000
Assembly
20
25,000
Total
36
50,000
Supervision
Purchasing
Human Resources
Assembly
Total
Utilities and Insurance
Purchasing
Human Resources
Assembly
Total
196) Boiano Corp. operates a retail store and has two service departments and two operating departments,
Hardware and Automotive. During the current year, the departments had the following direct
expenses and occupied the following amount of floor space.
Department
Direct Expenses
Square Feet
Advertising
$50,000
750
Administrative
100,000
1,500
Hardware
150,000
3,000
Automotive
200,000
9,750
The advertising department developed and aired 150 spots. Of these spots, 60 spots were for
Hardware and 90 spots were for Automotive. The store sold $1,500,000 of merchandise during the
year; $675,000 in Hardware and $825,000 in Automotive. Indirect expenses include rent, utilities,
and insurance expense. Total indirect expenses of $220,000 are allocated to all departments.
Prepare a departmental expense allocation spreadsheet for Boiano. The spreadsheet should assign
(1) direct expenses to each of the four departments, (2) allocate the indirect expenses to each
department on the basis of floor space occupied, (3) the advertising department’s expenses to the
two operating departments on the basis of ad spots placed promoting each department’s products,
(4) the administrative department’s expenses based on the amount of sales. Complete the
departmental expense allocation spreadsheet below. Provide supporting computations for the
expense allocations below the spreadsheet.
SHORT ANSWER QUESTIONS
197) Cycle time is calculated by process time plus inspection time plus move time plus ________.
198) With respect to cycle time, companies strive to reduce non-value added time in order to improve
________.
199) A generates revenues and incurs costs.
200) A ________ incurs costs without directly generating revenues.
201) A ________ provides information for managers to use to evaluate the profitability or cost
effectiveness of each department’s activities.
202) A ________ helps control costs and expenses and evaluates managers’ performance by assigning
costs and expenses to the managers responsible for controlling them.
203) Jarrett Department Store operates three departments (A, B and C). If total costs of $4,500 are to be
allocated on the basis of square feet of space (Dept. A = 1,500 Sq. Ft.; Dept. B = 900 Sq. Ft.; Dept.
C = 600 Sq. Ft.) then Dept. A’s share (in percent) of the $4,500 cost would be ________%; Dept. B
would be ________%, and Dept. C would be ________%. The amount of cost allocated to Dept. C
would be $________.
204) A accumulates and reports costs and expenses that a manager is responsible for,
including budgeted amounts.
205) ________ are costs incurred to produce or purchase two or more products at the same time.
206) A(n) is a department that generates revenues and incurs costs and whose manager is also
responsible for using the center’s assets to generate income for the center.
207) The investment center return on investment is ________ divided by ________.
208) In the two-stage cost allocation, ________ costs are allocated to operating departments, and the
operating department costs are allocated to .
209) The first three steps in preparing a departmental income statement are: (1) accumulate of
the department, (2) allocate ________ to the department, and (3) allocate ________ to the
operating departments.
210) The ________ is a report of the amount of sales less direct expenses for a department.