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PROBLEM 22.3A
GIANT CHEF EQUIPMENT COMPANY (concluded)
b.
Sales volume required for a $500,000 monthly responsibility margin in the Home
Products Division may be computed as follows:
60 Minutes, Strong PROBLEM 22.4A
MUSCLE BOUND CO.
a. Responsibility income statement of MUSCLE BOUND COMPANY
the Eastern Territory: Responsibility Income Statement
Eastern Territory
For January
Eastern Territory FasTrak RowMaster
Dollars Percent Dollars Percent Dollars Percent
Sales 1,350,000$ 100.0 600,000$ 100.0 750,000$ 100.0
b. Responsibility income statement of MUSCLE BOUND COMPANY
the entire company: Responsibility Income Statement
For January
Entire Company Eastern Territory Western Territory
Dollars Percent Dollars Percent Dollars Percent
Sales 1,950,000$ 100.0 1,350,000$ 100.0 600,000$ 100.0
Operating income 300,000$ 15.4%
* Minor rounding difference
** $350,000 = $120,000 common fixed costs of Eastern Territory + $230,000 traceable fixed costs.
PROBLEM 22.4A
MUSCLE BOUND CO. (concluded)
c. Each territory’s return on assets: Eastern Western
Territory Territory
d.
e.
FasTrak RowMaster
f.
All costs are traceable at some level of the organization. While the $120,000 in “common”
The manager should focus the campaign on the product line that will generate the greatest
contribution margin in relation to the additional fixed advertising cost. Thus, the manager
should support advertising of FasTrak, as shown below:
In the type of long-run investment described, top management must be aware of the ability
of the investment to cover fixed costs as well as variable costs. Thus, management should
PROBLEM 22.5A
BUTTERFIELD, INC.
a. Com
p
utation of ex
p
ected chan
g
e in res
p
onsibilit
y
mar
g
in:
(
1
)
Product
A
(
2
)
Product B
Ex
p
ected increase in sales 30,000$ 30,000$
b.
c.
45 Minutes, Strong
When an increase in revenue requires new manufacturing facilities, the revenue must be
In the Division 1 responsibility income statement, this $21,000 in costs was classified as
PROBLEM 22.5A
BUTTERFIELD, INC. (concluded)
e. BUTTERFIELD, INC.
Income Statement by Divisions
For the Month Ended April 30 Divisions
Butterfield, Inc. Division 1 Division 2
Dollars Percent Dollars Percent Dollars Percent
PROBLEM 22.6
A
FLYWIZ, INC.
a.
15 Minutes, Easy
Based solely on the financial data given, closure of the Rod Division would have increased
the company’s operating income to $9,000 (a $4,000 increase resulting from the elimination
of the negative responsibility margin generated by that division).
20 Minutes, Easy PROBLEM 22.7A
TOTS-TO-GO COMPANY
a.
Entire Seat Stroller
Using the market price, the contribution margins for each division and for the company as a
whole:
PROBLEM 22.8A
SPARTA AND ASSOCIATES
a.
Entire Green White
Company Division Division
(1)
b.
Entire Green White
Company Division Division
Using the discount price, the pre-tax operating profit for each division and for the company
as a whole:
Green Division Sales = 2,000 units × $150 = $300,000
White Division Sales = 1,500 units × $300 = $450,000
Entire Company Sales = (2,000 – 1,500) × $150 + (1,500 × $300) = $525,000
40 Minutes, Medium
Using the market price, the pre-tax operating profit for each division and for the company as
a whole:
PROBLEM 22.8A
SPARTA AND ASSOCIATES (concluded)
c.
Transfer prices generate accounting entries that show the flow of goods between
departments. One department records the transfer price as revenue, while the other
SOLUTIONS TO PROBLEMS SET B
PROBLEM 22.1B
FASTENERS INC.
a. FASTENERS INC.
Responsibility Income Statement
For the Current Month
Entire Company Zippers Line Buckles Line
Dollars Percent Dollars Percent Dollars Percent
b.
According to the analysis in part a, the Buckles product line is more profitable.
of this campaign will be in both sales and variable costs, and therefore the company should select the product line based on which
product has the highest contribution margin ratio. The contribution margin ratio for Zippers is .8 and would generate $40,000 ×
.8 = $32,000 in contribution. However, Buckles would generate $40,000 × .55 = $22,000 in contribution. So the advertising should
be spent on Zippers.
When determining the profitability of any product line, common fixed costs should not be considered. Only the costs that are
directly traceable to the product line should be considered. Common fixed costs are not directly traceable to any product, as they
are only arbitrarily allocated in proportion to a chosen factor, such as machine hours or square feet of space occupied.
20 Minutes, Easy
