Chapter 24 – Performance Measurement and Responsibility Accounting
Chapter 24
Performance Measurement and
Responsibility Accounting
QUESTIONS
1. Many companies are divided into departments when they become too large to be
effectively managed as single units. This division into departments is often needed
2. Operating departments are directly involved in manufacturing or selling the
3. Controllable costs of a department are those that the department’s manager has the
power to control, determine or at least strongly influence. The manager does not
4. Controllable and uncontrollable costs must be identified with a particular manager
5. Managers should be involved in preparing their responsibility accounting budgets to
enlist their cooperation and to ensure that the budgets represent reasonable goals.
6. Two main goals in managerial accounting for departments are to measure the: (i)
7. Not usually; a cost center cannot usually be evaluated in terms of its profitability
8. Direct expenses of a department are expenses that are incurred for the sole benefit
of that department—there is little doubt about which department should be charged
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9. a) Sales of the departments or the number of employees in each department.
b) Square feet of floor space, perhaps adjusted for its value.
10. A department’s contribution to overhead is measured by subtracting its direct
expenses from its revenues.
11. The individual responsible for controlling the cost needs timely reports with specific
12A. A transfer price is an amount used to record transactions made between divisions
13B. A joint cost is incurred to produce or purchase two or more different products at the
14B. Two examples of products with joint costs are: (1) Steel – used for home appliances,
15. a) It is useful to know the amount of sales for each department as well as direct
costs for each department. This information can help assess the effectiveness of
16. Controllable cost examples — labor of department, packaging supplies, office
17. Cycle time is the time it takes a company to produce a product or service. Its
components are process time, inspection time, move time, and wait time.
18. Value-added time provides value to a product or service from a customer’s
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19. Cycle efficiency is the ratio of value-added time divided by total cycle time. The
closer cycle efficiency is to 1, the more of a company’s time is spent on value-added
20. Yes. Samsung can use cycle time and cycle efficiency to measure operating
performance for its manufacturing operations. For example, these measures could
be used when analyzing its production of smartphones or computers.
QUICK STUDIES
Quick Study 24-1 (10 minutes)
% of Advertising to Allocated
Department Sales Total allocate amount
1……..………………....…..…...$220,000 27.5% $100,000 $ 27,500
2……..………………....…..…... 400,000 50.0% 100,000 50,000
Quick Study 24-2 (10 minutes)
% of Admin. Exp. Allocated
Department Employees Total to allocate amount
Mixing……..…..…..….…..…. 300 60.0% $160,000 $ 96,000
Quick Study 24-3 (10 minutes)
% of Maint. Exp. Allocated
Department Sq. Feet Total to allocate amount
Mixing…………………………. 22,000 55.0% $200,000 $ 110,000
Quick Study 24-4 (10 minutes)
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Quick Study 24-5 (10 minutes)
Possible allocation bases for these indirect expenses and service
department expenses include:
1. Proportion of total processing time for each factory department; or
2. Relative number of employees; or proportion of total sales.
3. Proportion of total time in each department for maintenance; or
4. Proportion of floor space occupied by each department; relative
number of lights; or proportion of total wattage in each department.
Quick Study 24-6 (5 minutes)
Quick Study 24-7 (15 minutes)
The first step is to allocate total rent expense between the two floors.
Amount
Allocated % of Total Cost
The second step is to allocate these portions of total rent expense across
the departments occupying the two floors
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Education.
Chapter 24 – Performance Measurement and Responsibility Accounting
First Floor Sq. Feet % of Total Cost
Paint Dept………………………..… 1,440 30% $25,350
Engine Dept…..……………........ 3,360 70 59,150
Totals………………..………………. 4,800 100% $84,500
Second Floor Sq. Feet % of Total Cost
Window Dept……………………... 2,016 42% $19,110
Quick Study 24-8 (15 minutes)
Departmental contribution to overhead
Dept. A: $18,815 – $ 3,660 = $15,155
Departmental contribution to overhead (as a percent of sales)*
Dept. A: $15,155 / $ 53,000 = 28.6%
Quick Study 24-9 (10 minutes)
Investment Center Income Average Assets
Return on
Investment
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Education.
Chapter 24 – Performance Measurement and Responsibility Accounting
Cameras and
Camcorders………………
$4,500,000 $20,000,000 22.5%
Comments: The Cameras and Camcorders division is the superior
investment center on the basis of the investment center return on
investment (assets). The Computers and Accessories division yields the
lowest return on investment and might be a candidate for reduction or
elimination without future improvements in return.
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Education.
Chapter 24 – Performance Measurement and Responsibility Accounting
Quick Study 24-10 (10 minutes)
Cameras &
Camcorders
Phones &
Communication
Computers &
Accessories
Net income………….……….…….$4,500,000 $1,500,000 $ 800,000
Less: Target net income
$20,000,000 x 12%…............
2,400,000
Quick Study 24-11 (15 minutes)
Investment center A:
Return on investment = Net income / Average invested assets
= $352,000 / $1,400,000 = 25%
Investment center B:
Return on investment = Profit margin x Investment turnover
0.12 = Profit margin x 1.5
Thus,
Profit margin = 0.12 / 1.5 = 0.08, or 8%
Quick Study 24-11 (continued)
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Chapter 24 – Performance Measurement and Responsibility Accounting
Investment turnover = Sales / Average invested assets
1.5 = $10,400,000 / Average invested assets
Thus,
Average invested assets = $10,400,000 / 1.5 = $6,933,333
Quick Study 24-12 (10 minutes)
Profit margin = $ 516,000 / $2,420,000 = 21.3%
Quick Study 24-13 (5 minutes)
Quick Study 24-14 (10 minutes)
Process Perspective Actual Occupancy Goal
U.S. 81%
Note: The U.S. goal arrow should be red (shown black here) and the International
goal arrow should be green (shown gray here).
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