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27. Checking:
Administration (0.30 ÷ 0.80) × $540,000
$ 202,500
Human resources (0.30 ÷ 0.80) × $360,000
135,000
Accounting (0.40 ÷ 0.80) × $300,000
150,000
Direct costs
630,000
$1,117,500
Savings:
Administration (0.40 ÷ 0.80) × $540,000
$270,000
Human resources (0.20 ÷ 0.80) × $360,000
90,000
Accounting (0.20 ÷ 0.80) × $300,000
75,000
Direct costs
337,500
$772,500
Loans:
Administration (0.10 ÷ 0.80) × $540,000
$ 67,500
Human resources (0.30 ÷ 0.80) × $360,000
135,000
Accounting (0.20 ÷ 0.80) × $300,000
75,000
Direct costs
675,000
$952,500
28. Administration ($540,000)
Human resources
$ 54,000
Accounting
54,000
Checking
162,000
Savings
216,000
Loans
54,000
$540,000
Human resources ($360,000 + $54,000 = $414,000)
Accounting
$414,000 × (0.10 ÷ 0.90)
$ 46,000
Checking
$414,000 × (0.30 ÷ 0.90)
138,000
Savings
$414,000 × (0.20 ÷ 0.90)
92,000
Loans
$414,000 × (0.30 ÷ 0.90)
138,000
$414,000
Accounting ($300,000 + $54,000 + $46,000 = $400,000)
Checking
$400,000 × (0.40 ÷ 0.80)
$200,000
Savings
$400,000 × (0.20 ÷ 0.80)
100,000
Loans
$400,000 × (0.20 ÷ 0.80)
100,000
$400,000
Checking: $630,000 + $162,000 + $138,000 + $200,000 = $1,130,000
29. a.
Human resources ($360,000)
Administration
($360,000 × 0.10)
$ 36,000
Maintenance
($360,000 × 0.15)
54,000
Assembly
($360,000 × 0.40)
144,000
Finishing
($360,000 × 0.35)
126,000
$360,000
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Administration ($558,000 + $36,000 = $594,000)
Maintenance
$594,000 × (0.10 ÷ 0.90)
$ 66,000
Assembly
$594,000 × (0.50 ÷ 0.90)
330,000
Finishing
$594,000 × (0.30 ÷ 0.90)
198,000
$594,000
Maintenance ($170,000 + $54,000 + $66,000 = $290,000)
Assembly
$290,000 × (0.45 ÷ 0.80)
$163,125
Finishing
$290,000 × (0.35 ÷ 0.80)
126,875
$290,000
b. Assembly:
Finishing:
c. The cost allocation is affected by the order in which costs are assigned be-
cause the cost allocated from a particular service department depends on the
30.
Admin.
HR
Acctg.
Administration
—
0.10
0.10
Human resources
0.10
—
0.10
Accounting
0.10
0.10
—
Checking
0.30
0.30
0.40
Savings
0.40
0.20
0.20
Loans
0.10
0.30
0.20
(A) Administration = $540,000 + 0.10B + 0.10C
B = $360,000 + 0.10($540,000 + 0.10B + 0.10C) + 0.10C
C = $300,000 + 0.10($540,000 + 0.10B + 0.10C) + 0.10B
B = $360,000 + $54,000 + 0.01B + 0.01C + 0.10C
C = $300,000 + $54,000 + 0.01B + 0.01C + 0.10B
C = $357,576 + 0.1111B
0.99B = $414,000 + 0.11($357,576 + 0.1111B)
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C = $357,576 + 0.1111($463,625)
A = $540,000 + 0.10($463,625) + 0.10($409,085)
Admin.
HR
Acctg.
Check.
Sav.
Loans
Direct costs
$ 540,000
$ 360,000
$ 300,000
$ 630,000
$337,500
$675,000
Admin.
(627,271)
62,727
62,727
188,181
250,908
62,727
HR
46,363
(463,625)
46,363
139,088
92,725
139,088
Acctg.
40,909
40,909
(409,085)
163,634
81,817
81,817
Total costs
$ 0
$ 0
$ 0
$1,120,903
$762,950
$958,632
Note: The Administration, Human Resources, and Accounting columns do not
sum to $0 because of rounding.
31. S1 = $170,000 + 0.40S2 + 0.20S3
Substitute S3 into the equations for S1 and S2:
(1) S1 = $170,000 + 0.40S2 + 0.20($600,000 + 0.20S1 + 0.30S2)
Simplifying:
(1) S1 = $170,000 + 0.40S2 + $120,000 + 0.04S1 + 0.06S2
(2) S2 = $360,000 + 0.10S1 + $180,000 + 0.06S1 + 0.09S2
Substitute S2 into the equation for S1:
S1 = $302,083 + 0.48($593,407 + 0.18S1)
Simplifying:
(1) S2 = $360,000 + $64,497 + 0.30S3
372 Chapter 13
Substitute S3 into the equation for S2:
S2 = $424,497 + 0.30($728,993 + 0.30S2)
S3 = $600,000 + 0.20($644,965) + 0.30($706,808)
Allocate the service department costs to the other departments:
S1
S2
S3
RP1
RP2
Direct costs
$ 170,000
$ 360,000
$ 600,000
S1
(644,965)
64,497
128,993
$193,490
$257,986
S2
282,723
(706,808)
212,042
141,362
70,681
S3
188,207
282,311
(941,035)
376,414
94,104
To RP
$ (4,035)*
$ 0
$ 0
$711,266
$422,771
*off due to rounding
32. a. D
b. A
c. D
d. A
e. D
33. a. $3 × 1.80 = $5.40
b. ($3 + $2) = $5; $5 × 1.30 = $6.50
c. $10
d. Sales (40,000 × $55) $ 2,200,000
Operating profit = 15,000 × $15 = $225,000
34. a. External purchase cost (30,000 × $4.50) $ 135,000
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b. External purchase cost (30,000 × $4.50) $ 135,000
duction Division’s monthly fixed costs of $30,000 would still have to be paid
by Squish—reducing the $25,000 of rental income. If some of the fixed costs
ployees (age discrimination?).
35. a. Upper limit is the best external price = $112.50
b. Minimum price is current selling price = $162
36. a.
(1) Variable production cost
$40.00
Variable selling cost
16.00
Total variable cost
$56.00 per unit
(2) Variable production cost
$40.00
FOH ($1,800,000 ÷ 1,200,000)
1.50
Full production cost
$41.50 per unit
(3) Variable production cost
$40.00
Fixed selling [$2,400,000 ÷ (0.25 × 1,200,000)]
8.00
Total variable production + necessary selling
$48.00 per unit
(4) Market price
$67.00 per unit
37. a. Lower limit is the incremental variable cost ($9.00 + $11.40 + $4.80) + Op-
portunity cost of $43.80 per unit lost CM = $69.00
$3.00 variable selling expense.
b. Under these conditions, Peyvandi Co. could accept any price that at least covers
variable production costs: DM $9.00 + DL $11.40 + VOH $4.80 = $25.20
c. $2,606,250 ÷ 1.25 = $2,085,000 for 50,000 units = $41.70 per unit DM $9.00
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Joe Dhir was defining cost as variable cost, while Peyvandi Co. was defining
cost as absorption cost.
38. a. The rapid increase in food costs has created a significant difference between the
b. The transfer pricing policy could be changed to allow transfers to take place at
c. Expected: 730,000 × $0.95 = $693,500
40. Each student will have a different answer. No solution is provided. One recent case
that could be discussed involved GlaxoSmithKline, which settled a transfer pricing
dispute with the U.S. Internal Revenue Service in September 2006 for $3+ billion
and, as of early 2007, was preparing for litigation in the United Kingdom. The
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PROBLEMS
41. a. The ethical problems are created when short-run gains can be maximized by
doing what is unethical rather than what is ethical. This situation is created by
ethically acceptable manner. The managers are merely reacting, albeit in an
ethically questionable way, to the incentives that have been put in place by the
company.
sibility; and provide managerial training in ethical behavior.
(CMA adapted)
42. a. The primary cause of the trend was the availability of new technology that
ing range of a patient who was not the patient being discussed, which could create
ethical dilemmas . . . and increasing the noise level that could disturb a patient’s
hard to help out in emergencies or even to know if a nurses’ station on the same
floor might be short-handed. To adjust the situation, hospitals are now reconfigur-
tient benefit of close contact, but eliminate the noise and “overhearing” possibili-
ties as well as encourage nurse interactions and promote “team spirit.”
43. a. The report is not in accordance with the concept of responsibility accounting, in
which each manager’s performance is judged by how well he/she manages those
items directly under his/her control. Responsibility accounting does not recognize
the allocation of common costs to segments. While including the corporate costs
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The report compares actual performance to a static budget. A static budget
fails to distinguish between the supervisor’s production control and cost con-
trol responsibilities. Cost control is involved with seeing that output is pro-
would result in the meaningful comparison of the actual cost of producing
3,185 units with the budgeted cost of producing 3,185 units.
Without additional information, it cannot be known which of the fixed manu-
b. Machining Department
Performance Report
For the Month Ended October 31, 2013
BUDGET
ACTUAL
VARIANCE
Units
3,185
3,185
0
Controllable costs
Var. mfg. costs
DM
$ 9.00
$28,665
$ 8.80
$28,028
$0.20
$ 637 F
DL
9.50
30,258
9.45
30,098
0.05
160 F
VOH
11.10
35,354
11.00
35,035
0.10
319 F
Total
$29.60
$94,277
$29.25
$93,161
$0.35
$1,116 F
Noncontrollable costs
Indirect labor
$ 3,300
$ 3,334
$ (34) U
Depreciation
1,500
1,500
0
Taxes
300
300
0
Insurance
240
240
0
Other
930
1,027
(97) U
Total fixed OH
$ 6,270
$ 6,401
$ (131) U
Total mfg. costs
$100,547
$99,562
$ 985 F
c. Review favorable unit and component variances to determine if realistic
budgets were set. Note that all of the controllable manufacturing cost vari-
(CMA adapted)
44. a. The most significant problem is that variances have been computed by comparing
a static budget to actual expenses. To evaluate cost control, variances should be
Chapter 13 377
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b.
Flexible
Budget
Actual
Variance
Activity # of cases
2,970
2,970
Variable costs
Professional labor
$2,970,000
$2,820,000
$150,000 F
Travel
148,500
120,000
28,500 F
Supplies
297,000
270,000
27,000 F
Fixed costs
Professional labor
1,200,000
1,215,000
15,000 U
Facilities
750,000
795,000
45,000 U
Insurance
240,000
234,000
6,000 F
Total
$5,605,500
$5,454,000
$151,500 F
45. a.
Budget
Actual
Variance
Direct labor
$ 375,000
$300,000
$ 75,000 F
Repairs
75,000
80,000
5,000 U
Maintenance
450,000
325,000
125,000 F
Indirect labor
75,000
77,500
2,500 U
Power
150,000
157,500
7,500 U
Totals
$1,125,000
$940,000
$185,000 F
ods?
c. Promotion decisions should be deferred until the answers to the questions
posed in (b) can be answered in depth.
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46. a.
Revenues ($900 100)
$ 90,000
Variable costs:
Meals ($10 9 106)
$ 9,540
Lodging ($75 3 106)
23,850
Supplies ($10 106)
1,060
(34,450)
Contribution margin
$ 55,550
Direct fixed costs:
Speakers ($2,500 each)
$15,000
Rent on facilities
3,600
Advertising
4,000
(22,600)
Segment margin
$ 32,950
Allocated fixed costs (0.25 $90,000)
(22,500)
Net operating income
$ 10,450
b.
Revenues ($850 120)
$102,000
Variable costs:
Meals ($10 9 1.15 126)
$13,041
Lodging ($75 3 126)
28,350
Supplies ($10 126)
1,260
(42,651)
Contribution margin
$ 59,349
Direct fixed costs:
Speakers ($2,950 6)
$17,700
Rent on facilities
4,200
Advertising
4,900
(26,800)
Segment margin
$ 32,549
Allocated fixed costs (0.25 $102,000)
(25,500)
Net operating income
$ 7,049
c.
ASP ASV
BSP ASV
BSP BSV
$850 120
$900 120
$900 100
$102,000
$108,000
$90,000
$6,000 U
$18,000 F
Sales Price Variance
Sales Volume Variance
$12,000 F
Total Revenue Variance