978-0077633059 Chapter 22 Solution Manual Part 3

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Exercise 22-11 (20 minutes)

(1)

Investment center

Operating

income Average assets*

Return on

investment

Beverage….….…….…..... $349 $2,628 13.28%

(2)

Investment center

Operating

income Sales Profit margin

Beverage….….…….…..... $349 $2,681 13.02%

(3)

Investment center Sales Average assets*

Investment

turnover

Beverage….….…….…..... $2,681 $2,628 1.02

*Beginning plus ending invested assets, divided by 2. Rounded to the nearest dollar.

Exercise 22-12 (10 minutes)

($ millions) Beverage Cheese

Operating income…...... $349 $634

Target net income

$2,628* x 7%…….….….

(184)

*Average invested assets. Computed as beginning plus ending invested assets, divided by two,

and rounded to nearest dollar.

Exercise 22-13 (15 minutes)

Investment center

Operating

income Sales Profit margin

Americas….….…….…..... $22,817 $62,739 36.4%

Exercise 22-14 (20 minutes)

1. Return on investment = $1,000,000/$12,500,000 = 8%

2. Profit margin = $1,000,000/$5,000,000 = 20%

4. Predicted 2016 investment turnover = $6,000,000/$12,500,000 = 0.48

Exercise 22-15 (20 minutes)

1. F 8. P

2. C 9. C

Exercise 22-16 (15 minutes)

Part 1

Process time…………………………………………………..…….…….….. 6.0 days

Inspection time……………….………………………………………….…… 0.8 days

Part 2

Manufacturing cycle efficiency (6.0 days/ 15.0 days)…......... 0.40

Part 3

If move time is reduced by 1.2 days and wait time is reduced by 2.8 days,

cycle efficiency will be 0.545, computed as 6.0 days divided by 11.0 days.

Exercise 22-17 (15 minutes)

Part 1

Process time…………………………………………………..…….…….…..16.0 hours

Inspection time……………….………………………………………….…… 3.5 hours

Exercise 22-17 (continued)

Part 2

Manufacturing cycle efficiency (16.0 hours/ 50.0 hours)...... 0.32

Part 3

To increase the manufacturing cycle efficiency to 0.80 Best Ink needs to

reduce the total manufacturing cycle time to 20 hours without changing the

Exercise 22-18A (15 minutes)

1. If the trailer division is currently operating at full capacity, its manager

will not accept a transfer price below the retail market price of $200 per

2. If the trailer division is currently producing 20,000 trailers and the

assembly division will order 15,000 more trailers, the Trailer division will

have excess capacity. In this case the range of acceptable transfer prices

Exercise 22-18A (continued)

3. The trailer division would prefer a transfer price of $140 per trailer, since

it provides a $60 ($140 – $80) contribution margin per trailer. At a transfer

price of $80 the trailer division reports a contribution margin of $0 per

trailer. Conversely, the assembly division manager prefers a transfer price

Exercise 22-19B (20 minutes)

Preliminary calculations

Land cost …………..……………………..….….….…….…….…..$4,000,000

Lots Quantity Price Total

Canyon…..…………..………………….. 450 $ 55,000 $24,750,000

Allocated cost—value basis of allocation: $7,500,000

Market % of Allocated Average

Value Total Cost Lot Cost

Canyon section…......... $24,750,000 60% $4,500,000 $10,000

Exercise 22-20B (25 minutes)

Preliminary calculations

Lobster cost (2,400 lbs. x $4.50)…..……...........$10,800

Parts Quantity* Price Total

* Quantities are computed as:

52% x 2,400 lbs. = 1,248 lbs.

22% x 2,400 lbs. = 528 lbs.

Allocated cost—value basis allocation: $12,600

Market % of Allocated Cost

Parts Value Total Cost per lb.

Lobster tails……………......$26,208 78.0% $9,828 $7.875

Lobster flakes…….…........ 7,392 22 .0 2,772 5.250

Total……………………..……..$33,600 100 .0 % $12,600

(1) Cost of goods sold

Parts Quantity (given) Cost Total

(2) Cost of ending inventory

Parts Quantity Cost Total

Lobster tails………………….…… 152 lbs.* $7.875 $ 1,197

* 1,248 lbs. – 1,096 lbs. sold = 152 lbs.

** 528 lbs. – 324 lbs. sold = 204 lbs.

Note: Cost of goods sold ($10,332) plus cost of ending inventory

($2,268) equals the total cost of $12,600.

Exercise 22-21 (20 minutes)

(1) Profit margin = Income/Sales

Investment center Income* Sales* Profit margin

Professional products…....... € 552 €2,717 20.32%

Active cosmetics.................. 278 1,386 20.06%

*In € millions

The professional products department has the highest profit margin.

(2) Investment turnover = Sales/Average invested assets

Investment center

Sales*

Avg. assets*

Investment

turnover

Professional products…....... €2,717 €2,570 1.06

Consumer products………..… 9,530 5,745 1.66

*In € millions. Avg. assets = Beginning assets plus ending assets, divided by two.

Note: Profit margin and investment turnover amounts are rounded to two decimal places.

The Active cosmetics department has the highest investment turnover.

PROBLEM SET A

Problem 22-1A (50 minutes)

Part 1

Responsibility Accounting Performance Report

Dept. Manager, Camper Department

For the Year

Budgeted Actual Over (Under)

Amount Amount Budget

Controllable Costs

Raw materials…………………..….……..$195,000 $194,200 $ (800)

Totals………..……………………………..…$392,000 $392,500 $ 500

Responsibility Accounting Performance Report

Dept. Manager, Trailer Department

For the Year

Budgeted Actual Over (Under)

Amount Amount Budget

Controllable Costs

Raw materials……………………..….…. $275,000 $273,200 $(1,800)

Employee wages………………..….….. 205,000 206,400 1,400

Problem 22-1A (Continued)

Responsibility Accounting Performance Report

Plant Manager, Indiana Plant

For the Year

Budgeted Actual Over (Under)

Amount Amount Budget

Controllable Costs

Dept. manager salaries….…..........$ 95,000 $ 97,500 $ 2,500

Utilities……………….……………….…... 9,000 8,300 (700)

Building rent….….…….…….……...... 15,000 14,000 (1,000)

Trailer department…..…….…….…... 695,000 696,200 1,200

Total…………....…….….…….…….…….$1,263,500 $1,261,600 $ (1,900)

Part 2

The plant manager did a better job of controlling costs and meeting the

budget. She came in under budget for the plant even though she paid the

department managers more than budgeted and had to absorb the amounts

Problem 22-2A (60 minutes)

Part 1

Average occupancy cost = $66,000 / 8,000 sq. ft. = $8.25 per sq. ft.

These costs are assigned to the two departments as follows

Department Square Footage Rate Total

Linder’s Dept................ 1,000 $8.25 $ 8,250

*A total of $23,100 ($8,250 + $14,850) in occupancy costs is allocated to these

departments. The company would follow a similar approach in allocating the remaining

occupancy costs ($42,900, computed as $66,000 – $23,100) to its other departments (not

shown in this problem).

Part 2

Market rates are used to allocate occupancy costs for depreciation,

Total

Costs

Value-Based

Costs

Usage-Based

Costs

Depreciation—Building………………..$18,000 $18,000

Interest—Building mortgage…........ 27,000 27,000

Taxes—Building and land……………. 9,000 9,000

Gas (heating) expense……..….……... 3,000 $ 3,000