Problem 22-2A (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
Second floor ………………………
4,000
20
Total market value …..…………
$200,000
(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
Second floor ………………………
80,000
40
21,600
5.40
Totals ……………………..……
$200,000
100%
$54,000
Usage–based costs allocation rate = $12,000 / 8,000 sq. ft.
= $1.50 per sq. ft.
We can then compute total allocation rates for the floors
Floor
Value
Usage
Total
First floor …………………………..
$8.10
$1.50
$9.60
Second floor ………………………
5.40
1.50
$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
Chiro’s Department……………………..
1,800
6.90
$12,420
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
method implies all square footage has equal value. This is not logical for this
type of occupancy. It also means the second-floor space would be allocated a
larger portion of costs under the current method, but less using an allocation
based on market value.
Problem 22-3A (70 minutes)
Williams Company
Forecasted Departmental Income Statements
For Year Ended December 31, 2016
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 ………………...
972
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
Problem 22-3A (Continued)
Note 3 (Store Supplies Used)
Clock
Mirror
Paintings
2015 store supplies used …………..……
$ 900
$ 400
Growth rate (8% increase) ………….……
x 108%
x 108%
2016 store supplies …………………..……
$ 972
$ 432
$ 500
Note 4 (Rent and Utilities)
Clock
Mirror
Paintings
2015 rent …………………………………..……
$ 7,020
$ 3,780
One-fifth from clock to paintings ..……
(1,404)
$ 1,404
One-fourth from mirror to
paintings …………………………………………
______
(945)
945
2016 allocation of $10,800 rent …………
$ 5,616
$ 2,835
$ 2,349
Percent of total * ……………………….….
52.0%
26.2%†
21.8%†
2016 allocation of $4,000
total utilities …………………………….……
$ 2,080
$ 1,048
$ 872
† Adjusted to eliminate rounding difference.
Note 5 (Office Department Expenses)
Clock
Mirror
Paintings
2015 sales ………………………………………
$140,400
$ 59,400
$ 50,000
Percent of total sales * ……………….……
56.2%
23.8%
20.0%
2016 allocation of $22,000
total office department
expenses($15,000 in 2015
plus $7,000 increase) ………………..……
$ 12,364
$ 5,236
$ 4,400
* Instructor note: If students round to something other than one-tenth of a percent, their
numbers will slightly vary.
Problem 22-4A (45 minutes)
Part 1
VORTEX COMPANY
Departmental Contribution Statements
Dept. A
Dept. B
Sales ………………………………….
$800,000
$450,000
Cost of goods sold …………….
497,000
291,000
Gross profit ……………………….
303,000
159,000
Direct expenses
Salaries ……………………………..
125,000
88,000
Insurance …………………………..
Utilities …………………………..….
Depreciation. ……………………..
20,000
24,000
21,000
10,000
14,000
12,000
Maintenance ………………………
7,000
5,000
Total direct expenses …………
197,000
129,000
Departmental contributions to
overhead ………………………….
Allocated indirect expenses
106,000
30,000
Salaries* …………………………....
23,040
12,960
Insurance** ………………………..
4,200
1,800
Depreciation*** …………………..
10,500
4,500
Office**** …………………………...
Total indirect expenses ………
30,000
67,740
20,000
39,260
Operating income ………………
$ 38,260
$ (9,260)
*
Salaries allocation:
Sales
%
Amount
Allocated
Department A
$ 800,000
64%
$36,000
$23,040
Department B
450,000
36%
36,000
12,960
Total
$1,250,000
100%
$36,000
**
Insurance allocation:
Sq. ft.
%
Amount
Allocated
Department A
28,000
70%
$6,000
$ 4,200
Department B
12,000
30%
6,000
1,800
Total
40,000
100%
$ 6,000
***
Depreciation allocation:
Sq. ft.
%
Amount
Allocated
Department A
28,000
70%
$15,000
$10,500
Department B
12,000
30%
15,000
4,500
Total
40,000
100%
$15,000
Problem 22-4A (Concluded)
****
Office expense allocation:
Employees
%
Amount
Allocated
Department A
75
60%
$50,000
$30,000
Department B
50
40%
50,000
20,000
Total
125
100%
$50,000
P
Problem 22-5AB (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
No. 3 ……………….…………
187,500
20.0
81,000
Total ……………….…………
$937,500
100.0%
$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
No. 3 ……………….…………
187,500
20.0
40,500
Total ……………….…………
$937,500
100.0%
$202,500
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
No. 3 [identified] ..…………
________
_____
37,500*
Total ……………….…………
$750,000
100.0%
$67,500
* If students did not round percents to one-tenth, their answers will vary
slightly from those reported here.
**The No. 3 Grade delivery costs are given in the problem description.
Problem 22-5AB (Continued)
Part 2
GEORGIA ORCHARDS
Income Statement
For Year Ended December 31, 2015
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
Picking, sorting & grading ……..…..
97,200
64,800
40,500
202,500
Delivery ……………………………………..
18,000
12,000
37,500
67,500
Total costs …………………………….…..
309,600
206,400
159,000
675,000
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,
Problem 22-1B (50 minutes)
Part 1
a.
Responsibility Accounting Performance Report
Dept. Manager, Refrigerator Department
For the Month of April
Budgeted
Actual
Over (Under)
Amount
Amount
Budget
Controllable Costs
Raw materials ………………………..…
$400,000
$385,000
$(15,000)
Employee wages ………………………
170,000
174,700
4,700
Supplies used ………………………..…
15,000
14,000
(1,000)
Depreciation—Equipment …………
53,000
53,000
0
Totals ………………………………………
$638,000
$626,700
$(11,300)
b.
Responsibility Accounting Performance Report
Dept. Manager, Dishwasher Department
For the Month of April
Budgeted
Actual
Over (Under)
Amount
Amount
Budget
Controllable Costs
Raw materials ………………………..…
$200,000
$202,000
$ 2,000
Employee wages …………………………
80,000
81,500
1,500
Supplies used ………………………..…
9,000
9,700
700
Depreciation—Equipment ……………
37,000
37,000
0
Totals …………………………………………
$326,000
$330,200
$4,200
Problem 22-1B (Continued)
c.
Responsibility Accounting Performance Report
Plant Manager, Chicago Plant
For the Month of April
Budgeted
Actual
Over (Under)
Amount
Amount
Budget
Controllable Costs
Dept. manager salaries……….
$ 104,000
$ 101,500
$ (2,500)
Utilities …………………………..….
48,000
55,200
7,200
Building rent ………………………
80,000
82,300
2,300
Other office salaries …………..
40,000
35,200
(4,800)
Other office costs ………………
21,000
29,800
8,800
Refrigerator department ……..
638,000
626,700
(11,300)
Dishwasher department ……..
326,000
330,200
4,200
Totals ………………………………..
$1,257,000
$1,260,900
$ 3,900
Part 2
The refrigerator department manager did a good job of controlling costs
and meeting the budget, spending $11,300 below budget. However, the
dishwasher department did not do such a good job, spending $4,200 above
the budgeted amount. The plant manager’s controllable costs would have
been under budget by $300 if the Dishwasher department manager’s actual
costs had been equal to budgeted costs.
Problem 22-2B (60 minutes)
Part 1
Average occupancy cost = $465,000 / 20,000 sq. ft. = $23.25 per sq. ft.
These costs are assigned to Style’s department as follows
Department
Square
Footage
Rate
Total
Style’s Dept. ……………..
2,000
$23.25
$46,500
Part 2