Average invested assets = (€12,888 + €13,099) / 2
Return on investment (assets) = €3,385 / €12,944
Solutions Manual, Chapter 22 1293
EXERCISES
Exercise 22-1 (30 minutes)
(1) Items included in performance report
The following items definitely should be included in the performance
report for the auto service department manager because they are
controlled or strongly influenced by the manager’s decisions and
activities:
(2) Items excluded from performance report
The following items definitely should be excluded from the performance
report because the department manager cannot control or strongly
influence them:
Building depreciation
(3) Items that may or may not be included in performance report
The following items cannot be definitely included or definitely excluded
from the performance report because they may or may not be
completely under the manager’s control or strong influence:
Payroll taxes Some portion of this expense relates to the
Utilities Whether this expense is controllable depends on
the design of the auto dealership. If the auto
Exercise 22-2 (20 minutes)
MARATHON RUNNING SHOP
Departmental Expense Allocation Spreadsheet
For Year Ended December 31, 2015
Allocation of Expenses to Departments .
Alloca-
tion
Base
Expense
Account
Balance
Adver-
tising
Dept.
Admini-
strative
Dept.
Shoes
Dept.
Clothing
Dept.
Direct expenses……….... $161,000 $18,000 $25,000 $103,000 $15,000
Indirect utilities
expenses…………….......
Sq.
feet 64,000 5,120 6,400 32,640 19,840
Total exp. allocated
to operating depts….... $225,000 $ 0 $ 0 $177,472 $47,528
Supporting expense allocation calculations
Utilities expense: $64,000
Square Feet % of Total Cost
Advertising............ 1,120 8% $ 5,120
Administrative....... 1,400 10 6,400
Total…………………... 14,000 100.0% $64,000
Advertising expense: $23,120
Ads Placed % of Total Cost
Shoes……..….......... 90 75% $17,340
Administrative expense: $31,400
Sales % of Total Cost
Shoes……..….......... $273,000 78% $24,492
Exercise 22-3 (25 minutes)
COZY BOOKSTORE
Departmental Expense Allocation Spreadsheet
For Period Ended _______
Allocation of Expenses to Departments .
Alloca-
tion Base
Exp.
Account
Balance
Adver-
tising
Dept.
Purch-
asing
Dept.
Books
Dept.
Maga-
zines
Dept.
News-
papers
Dept.
Total dept. exp….................. $698,000 $24,000 $34,000 $425,000 $90,000 $125,000
Total expenses
allocated to
operating depts….............. $698,000 $ 0 $ 0 $452,820 $105,480 $139,700
Computations for allocations of service dept. costs to operating departments
Advertising: $24,000
Sales % of Total Cost
Books Dept…………………..……….. $495,000 55% $13,200
Magazines Dept…….…..………….. 198,000 22 5,280
Purchasing: $34,000
Purchase Orders % of Total Cost
Books Dept…………………..……….. 516 43% $14,620
Magazines Dept…….…..………….. 360 30 10,200
Exercise 22-4 (20 minutes)
Allocation of annual wages between the two departments
Hours Worked* % of Total Cost
Jewelry Dept…………..……….…….…… 57 75% $22,500
*Computation of hours worked in the two selling departments
Jewelry department
Selling…….…………..…………..………..……………51
Arranging and stocking………………..………… 6 57 hours
Hosiery department
Exercise 22-5 (25 minutes)
1. Allocation of Indirect Expenses to Four Operating Departments
Supervision expenses
Department Employees % of Total Cost
Materials…………………….……… 27 18% $14,850
Personnel……………..…….…….. 9 6 4,950
Utilities expenses
Department Square Feet % of Total Cost
Materials…………………….……… 25,000 25% $12,500
Personnel……………..…….…….. 5,000 5 2,500
Manufacturing………………..….. 55,000 55 27,500
Insurance expenses
Department Assets Value % of Total Cost
Materials…………………….……… $ 6,000 10% $ 2,250
Personnel……………..…….…….. 1,200 2 450
2. Report of Indirect Expenses Assigned to Four Operating
Departments
Supervision Utilities Insurance Total
Materials…………………….………$14,850 $12,500 $ 2,250 $ 29,600
Personnel……………..…….……..4,950 2,500 450 $ 7,900
Exercise 22-6 (20 minutes)
(1)
WHOLESALE GUITARS
Departmental Contribution Statements
For Year Ended December 31, 2015
Acoustic Electric
Dept. Dept. Combined
Sales……………..…….……….…… $112,500 $105,500 $218,000
Supplies expense….…….…….. 2,030 1,700 3,730
Total direct expenses..…….…. 29,480 24,200 53,680
Departmental contributions to
overhead
Indirect expenses
$ 27,345 $ 14,550 $ 41,895
(2) Based on departmental contribution to overhead, the electric guitar
Exercise 22-7 (25 minutes)
1.
JANSEN COMPANY
Departmental Income Statement—Ski Department
For Year Ended December 31, 2015
Ski Dept.
Sales……………..……………….……... $605,000
Utilities………………….…….…….…
Depreciation…………………………
Office expenses………………..…..
14,000
42,000
20,000
2.
JANSEN COMPANY
Departmental Contribution to Overhead—Ski Department
For Year Ended December 31, 2015
Ski Dept.
Sales……………..……………….……... $605,000
Direct expenses
Salaries….…………………………….
Utilities………………….…….…….…
Depreciation…………………………
Contribution to overhead...........
97,000
11,000
32,000
3. Based on these performance reports, the ski department should not be
eliminated. It generates a positive contribution to overhead.
Exercise 22-8 (15 minutes)
1.
Location Net income Average assets
Return on
investment
Location A…..…...............$160,000 $1,000,000 16%
2. The recommendation is to pursue Location B because its return on
This exercise should caution students to think beyond financial
numbers alone. Some students may discuss the need to look at the
Exercise 22-9 (20 minutes)
(1)
Investment center Income Average assets
Return on
investment
Electronics…..…….……..$2,880,000 $16,000,000 18%
Comment: The electronics division is the superior investment center on the
basis of the investment center return on investment (assets).
Exercise 22-9 (continued)
(2)
Investment Center Electronics
Sporting
Goods
Net income…..……….….. $2,880,000 $2,040,000
Target net income
(1,920,000
Comment: The electronics department is the superior investment center on
the basis of investment center residual income.
(3) The electronics department should accept the new opportunity, since it
Exercise 22-10 (15 minutes)
Investment Center Income Sales Profit margin
Electronics…..…….……..$2,880,000 $40,000,000 7.20%
Investment Center Sales Average assets
Investment
turnover
Electronics………………..
$40,000,000 $ 16,000,000 2.50
Comments: The sporting goods department generates the most net income