Chapter 24 – Performance Measurement and Responsibility Accounting
Quick Study 24-15 (10 minutes)
a
.
Process time……………………………………………………..……….……15.0 minutes
Inspection time………………………………………………….………….…2.0 minutes
b. Manufacturing cycle efficiency (15.0 min./ 60.0 min.)………... 0.25
Quick Study 24-16A (10 minutes)
Without excess capacity, a market-based transfer price of $450 per
windshield should be used. The assembly division should be indifferent to
buying at the market price from the windshield division or from an outside
supplier. The windshield division will not be willing to accept any transfer
price less than the market price, since it can sell all of its production to
outside customers at that price.
Quick Study 24-17A (10 minutes)
If the windshield division has excess capacity, a range of acceptable
transfer prices becomes possible. The windshield division will not accept
a transfer price below its variable manufacturing costs of $200 per
windshield. The assembly division will not pay more than the $450 market
price. Thus, a transfer price within the range of $200 to $450 per
windshield should be agreed upon, and the assembly division should buy
from the windshield division.
Quick Study 24-18B (15 minutes)
Total joint cost = $325,000 + $50,000 = $375,000
Unit A market value (3,340 x $1.00)………………………....$3,340
Unit B market value (6,680 x $0.75)………….…………….. 5,010
Total market value …………………………………..…………….$8,350
Unit B joint cost = $375,000 x ($5,010 / $8,350) = $225,000
Quick Study 24-19 (5 minutes)
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Chapter 24 – Performance Measurement and Responsibility Accounting
Average invested assets = (€12,888 + €13,099) / 2
= €12,944 (rounded)
Return on investment (assets) = €3,385 / €12,944
= 26.05% (rounded)
EXERCISES
Exercise 24-1 (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:
Sales of parts
(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
Income taxes allocated to the department
Interest on long-term debt
Manager’s salary
(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
manager’s salary and is not controllable by the
manager. The portion that relates to hourly wages
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Chapter 24 – Performance Measurement and Responsibility Accounting
Utilities Whether this expense is controllable depends on
manager of the auto service department.
Exercise 24-2 (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 dept. exp…............ 225,000 23,120 31,400 135,640 34,840
Service Dept. Expenses
Utilities expense: $64,000
Square Feet % of Total Cost
Advertising............ 1,120 8% $ 5,120
Administrative….... 1,400 10 6,400
Shoes………..…....... 7,140 51 32,640
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Chapter 24 – Performance Measurement and Responsibility Accounting
Clothing….............. 30 25 5,780
Total…….…………..… 120 100% $23,120
Administrative expense: $31,400
Total…….…………..… $350,000 100% $31,400
Exercise 24-3 (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
Service Dept. Expenses
Advertising Dept….…….……...
Sales (24,000) 13,200 5,280 5,520
Purchasing
Purch.
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
Newspapers Dept…..…..…..…..... 207,000 23 5,520
Totals……..…………..…..…..…..…... $900,000 100% $24,000
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Chapter 24 – Performance Measurement and Responsibility Accounting
Exercise 24-4 (20 minutes)
Allocation of annual wages between the two departments
Hours Worked* % of Total Cost
Jewelry Dept…………………..………….. 57 75% $22,500
Instructor note: This analysis ignores idle time because neither department
receives any direct benefit from it. Accordingly, the total wages are allocated
between the departments in proportion to the time worked in each.
Exercise 24-5 (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
Manufacturing………………….... 63 42 34,650
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Chapter 24 – Performance Measurement and Responsibility Accounting
Manufacturing………………….... 55,000 55 27,500
Packaging….……….…………..... 15,000 15 7,500
Totals………………………………... 100,000 100% $50,000
Insurance expenses
Department Assets Value % of Total Cost
Materials…………………….……… $ 6,000 10% $ 2,250
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 24-6 (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
Cost of goods sold……..……… 55,675 66,750 122,425
Gross profit……………….….…… 56,825 38,750 95,575
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Chapter 24 – Performance Measurement and Responsibility Accounting
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
Rent expense……….……….…… 12,055
Utilities expense…..….………… 5,595
(2) Based on departmental contribution to overhead, the electric guitar
department should not be eliminated, as it contributes $14,550 to
covering indirect expenses.
Exercise 24-7 (25 minutes)
1.
JANSEN COMPANY
Departmental Income Statement—Ski Department
For Year Ended December 31, 2015
Ski Dept.
Sales……………………………….…….. $605,000
Cost of goods sold…………………. 425,000
Gross profit…………………………….
Operating expenses
180,000
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2.
JANSEN COMPANY
Departmental Contribution to Overhead—Ski Department
For Year Ended December 31, 2015
Ski Dept.
Sales……………………………….…….. $605,000
Cost of goods sold…………………. 425,000
3. Based on these performance reports, the ski department should not be
eliminated. It generates a positive contribution to overhead.
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