Fundamental Accounting Principles, 21st Edition
1430
Exercise 24-6 (20 minutes)
Allocation of annual wages between the two departments
Hours Worked*
% of Total
Cost
Jewelry Dept ……………………….….
57
75%
$22,500
Totals …………………………………………
76
100%
$30,000
*Computation of hours worked in the two selling departments
Jewelry department
Selling …………………………………………………..
51
Arranging and stocking …………………..……..
6
Hosiery department
Selling …………………………………………………..
12
Arranging and stocking …………………..……..
7
Total hours ………………………………………..……..
Instructor note: This analysis ignores idle time because neither department
Exercise 24-7 (15 minutes)
1.
Location
Net Income
Average Assets
Return on
Investment (Assets)
Location A …………..………
$160,000
$1,000,000
16%
2. The recommendation is to pursue Location B because its return on
investment (assets) is 18%, compared to 16% at Location A. Moreover,
given the normal return of 18% for this chain, only Location B meets this
hurdle.
Exercise 24-8 (20 minutes)
(1)
Investment Center
Net Income
Average Assets
Return on
Investment (Assets)
Electronics …………….….
$2,880,000
$16,000,000
18%
17%
Comment: The Electronics division is the superior investment center on
the basis of the investment center return on investment (assets).
Fundamental Accounting Principles, 21st Edition
1432
Exercise 24-8 (continued)
(2)
Investment Center
Electronics
Sporting
Goods
Net income ………………..
$2,880,000
$2,040,000
Target net income
Comment: The Electronics division is the superior investment center on
the basis of investment center residual income.
Exercise 24-9 (15 minutes)
Investment Center
Net 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
1.67
Comments: The Sporting goods division generates the most net income
Exercise 24-10 (20 minutes)
1. F 8. P
Exercise 24-11A (15 minutes)
1. If the Trailer division is currently operating at full capacity, its manager
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
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
Fundamental Accounting Principles, 21st Edition
1434
Exercise 24-12B (20 minutes)
Preliminary calculations
Land cost ……………………………………………………………..…….
$4,000,000
Improvements ……………………………………………………….
Total cost of lots …………………………………………………..…..
$7,500,000
Lots
Quantity
Price
Total
Canyon …………………………………..
450
$ 55,000
$24,750,000
Hilltop ………………………………..…..
150
Total market value ……………..…..
$41,250,000
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
$3,000,000
$20,000
Exercise 24-13B (25 minutes)
Preliminary calculations
Lobster cost (2,400 lbs. x $4.50) ……………………….
$10,800
Labor cost ……………………………………………………...
Total cost of processed lobsters ……………………..
$12,600
Parts
Price
Total
Lobster tails ……………………..
1,248 lbs.
$21
$26,208
Lobster flakes …………………..
Total market value …………....
$33,600
* Quantities are computed as:
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 ………….….
(1) Cost of goods sold
Parts
Quantity (given)
Cost
Total
Lobster tails ……………………....
1,096 lbs.
$7.875
$ 8,631
Lobster flakes…………………....
(2) Cost of ending inventory
Parts
Quantity
Cost
Total
Lobster tails ……………………....
152 lbs.*
$7.875
$ 1,197
Lobster flakes…………………....
Fundamental Accounting Principles, 21st Edition
1436
Exercise 24-14 (20 minutes)
(1) Profit margin = Income/Sales
Investment Center
Income*
Sales*
Profit margin
Professional products ……….
€ 552
€2,717
20.32%
Consumer products …………..
1,765
9,530
18.52%
*In € millions
(2) Investment turnover = Sales/Average invested assets
Investment Center
Sales*
Avg. assets*
Investment
turnover
Professional products ……….
€2,717
€2,570
1.06
4,507
3,855
1.17
*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.
PROBLEM SET A
Problem 24-1A (60 minutes)
Part 1
These costs are assigned to the two departments as follows
Department
Square Footage
Rate
Total
Linder’s Dept. ……………
1,000
$8.25
$ 8,250
Part 2
Market rates are used to allocate occupancy costs for depreciation,
interest, and taxes. Heating, lighting, and maintenance costs are allocated
to the departments on both floors at the average rate per square foot.
These costs are separately assigned to each class as follows:
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
3,000
Fundamental Accounting Principles, 21st Edition
1438
Problem 24-1A (Continued)
Value-based costs are allocated to departments in two steps
(i) Compute market value of each floor
Floor
Square
Footage
Value per
Sq. Ft.
Total
First floor ………………..…………
4,000
$30
$120,000
4,000
Total market value …..…………
(ii) Allocate $54,000 to each floor based on its percent of market value
Floor
Market
Value
% of
Total
Allocated
Cost
Cost per
Sq. Ft.
First floor ………………..…………
$120,000
60%
$32,400
$8.10
Totals ……………………..……
$200,000
$54,000
We can then compute total allocation rates for the floors
Floor
Value
Usage
Total
First floor …………………………..
$8.10
$1.50
$9.60
$6.90
These rates are applied to allocate occupancy costs to departments
Department
Square
Footage
Rate
Total
Linder’s Department …………………...
1,000
$9.60
$ 9,600
Part 3
A second-floor manager would prefer allocation based on market value. This is a
reasonable and logical approach to allocation of occupancy costs. The current
Problem 24-2A (70 minutes)
Williams Company
Forecasted Departmental Income Statements
For Year Ended December 31, 2014
Clock
Mirror
Paintings
Combined
Sales …………………………..…………...
$140,400
$59,400
$50,000
$249,800
(1)
Cost of goods sold …………………...
68,796
36,828
22,500
128,124
(2)
Gross profit ……………………………...
71,604
22,572
27,500
121,676
Direct expenses
Sales salaries ………………………….
20,000
7,000
8,000
35,000
Advertising ……………………………..
1,200
500
800
2,500
Store supplies used ………………...
432
500
1,904
(3)
Depreciation of equipment ……...
1,500
300
200
2,000
Total direct expenses ……………...
23,672
8,232
9,500
41,404
Allocated expenses
Rent expense ………………………….
5,616
2,835
2,349
10,800
(4)
Utilities expense ……………………..
2,080
1,048
872
4,000
(4)
Share of office dept. expenses ...
12,364
5,236
4,400
22,000
(5)
Total allocated expenses ………...
20,060
9,119
7,621
36,800
Total expenses ………………………….
43,732
17,351
17,121
78,204
Net income ……………………………….
$ 27,872
$ 5,221
$10,379
$ 43,472
Supporting Computations—coded (1) through (5) in statement above
Note 1 (Sales)
Clock
Mirror
Paintings
2013 sales …………………………………..
$130,000
$ 55,000
2014 sales …………………………………..
$140,400
$ 59,400
$ 50,000
Note 2 (Cost of Goods Sold)
Clock
Mirror
Paintings
2013 cost of goods sold ……………….
$ 63,700
$ 34,100
$ 50,000
2014 cost of goods sold ……………….
$ 68,796
$ 36,828
$ 22,500
ALTERNATIVELY
2013 cost of goods sold ……………….
$ 63,700
$ 34,100
2013 sales …………………………………..
$130,000
$ 55,000
2014 sales ………………………………….
$140,400
$ 59,400
$ 50,000
2014 cost of goods sold ……………….
$ 68,796
$ 36,828
$ 22,500
Fundamental Accounting Principles, 21st Edition
1440
Problem 24-2A (Continued)
Note 3 (Store Supplies Used)
Clock
Mirror
Paintings
2013 store supplies used …………..……
$ 900
$ 400
Growth rate (8% increase) ………….……
x 108%
2014 store supplies …………………..……
$ 972
$ 432
$ 500
Note 4 (Rent and Utilities)
Clock
Mirror
Paintings
2013 rent …………………………………..……
$ 7,020
$ 3,780
One-fifth from clock to paintings
(1,404)
$ 1,404
One-fourth from mirror to
paintings
______
(945)
945
2014 allocation of $10,800 rent …………
$ 5,616
$ 2,835
$ 2,349
Percent of total * ……………………….….
2014 allocation of $4,000
$ 2,080
$ 1,048
$ 872
† Adjusted to eliminate rounding difference.
Note 5 (Office Department Expenses)
Clock
Mirror
Paintings
2014 sales ………………………………………
$140,400
$ 59,400
$ 50,000
Percent of total sales * ……………….……
56.2%
23.8%
20.0%
$ 12,364
$ 5,236
$ 4,400
Problem 24-3A (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)
Employee wages …………………………
104,000
106,600
2,600
Supplies used ………………………..…
b.
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
Supplies used ………………………..…
1,600
Fundamental Accounting Principles, 21st Edition
1442
Problem 24-3A (Continued)
c.
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)
32,500
30,100
(2,400)
Camper department ……………….…
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
Problem 24-4AB (60 minutes)
Part 1
Allocations of joint costs on the basis of sales values
Tree pruning and care: $405,000
Grade
Sales
Value
Percent
of Total
Allocated
Cost
No. 1 ……………….…………
$450,000
48.0%
$194,400
No. 2 ……………….…………
300,000
32.0
129,600
$937,500
$405,000
Picking, sorting, and grading: $202,500
Grade
Sales
Value
Percent
of Total
Allocated
Cost
No. 1 ……………….…………
$450,000
48.0%
$ 97,200
No. 2 ……………….…………
300,000
32.0
64,800
Delivery: $30,000 to Grade Nos. 1 & 2
Grade
Sales
Value
Percent
of Total
Allocated
Cost
No. 1 ……………….…………
$450,000
60.0%
$18,000
No. 2 ……………….…………
300,000
40.0
12,000
$750,000
$67,500
Fundamental Accounting Principles, 21st Edition
1444
Problem 24-4AB (Continued)
Part 2
GEORGIA ORCHARDS
Income Statement
For Year Ended December 31, 2013
No. 1
No. 2
No. 3
Combined
Sales (by grade)
No. 1: 300,000 lbs. @ $1.50 …….…..
$450,000
No. 2: 300,000 lbs. @ $1.00 …….…..
$300,000
No. 3: 750,000 lbs. @ $0.25 …….…..
$187,500
Total sales …………………………….…..
$937,500
Costs
Tree pruning and care ………………..
194,400
129,600
81,000
405,000
Delivery ……………………………………..
Net income (loss) …………………….…..
$140,400
$ 93,600
$ 28,500
$262,500
Part 3
Delivery costs include both crating and hauling costs. Georgia is able to
identify the portion of the cost directly related to the No. 3 peaches,
presumably because the No. 3s are going to a different destination than the