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Solutions Manual, Chapter 5 51
Problem 5-26 (60 minutes)
1. The disadvantages or weaknesses of the company’s version of a
segmented income statement are as follows:
of the three regions taken together.
b. The regional expenses should be segregated into variable and fixed
and a regional segment margin.
should not be arbitrarily allocated.
2. Corporate advertising expenses have been allocated on the basis of
sales dollars; the general administrative expenses have been allocated
the segments—should be used to measure the performance of a
52 Managerial Accounting for Managers, 4th Edition
Problem 5-26 (continued)
3.
Total Company
West
Central
East
Sales .....................................
$2,000,000
100.0
$450,000
100
$800,000
100
$750,000
100
Variable expenses:
Cost of goods sold ...............
819,400
41.0
162,900
36
280,000
35
376,500
50
Shipping expense .................
77,600
3.9
17,100
4
32,000
4
28,500
4
Total variable expenses ...........
897,000
44.9
180,000
40
312,000
39
405,000
54
Contribution margin ................
1,103,000
55.1
270,000
60
488,000
61
345,000
46
Traceable fixed expenses:
Salaries ...............................
313,000
15.6
90,000
20
88,000
11
135,000
18
Utilities ................................
40,500
2.0
13,500
3
12,000
2
15,000
2
Advertising ..........................
518,000
25.9
108,000
24
200,000
25
210,000
28
Depreciation ........................
85,000
4.3
27,000
6
28,000
4
30,000
4
Total traceable fixed expenses .
956,500
47.8
238,500
53
328,000
42
390,000
52
Regional segment margin ........
146,500
7.3
$ 31,500
7
$160,000
19
$ (45,000)
(6)
Common fixed expenses:
Advertising (general) ............
80,000
4.0
General administration .........
150,000
7.5
Total common fixed expense ...
230,000
11.5
Net operating loss ..................
$ (83,500)
( 4.2)
Solutions Manual, Chapter 5 53
Problem 5-26 (continued)
4. The following points should be brought to the attention of management:
three regions.
b. The West is spending about half as much for advertising as the
Central Region. Perhaps this is the reason for the West’s lower sales.
d. The East appears to be overstaffed. Its salaries are about 50%
greater than in either of the other two regions.
e. The East is not covering its own traceable costs. Attention should be
region.
f. Apparently, the salespeople in all three regions are on a salary basis.
54 Managerial Accounting for Managers, 4th Edition
Problem 5-27 (30 minutes)
1. Because of soft demand for the Brazilian Division’s product, the
inventory should be drawn down to the minimum level of 50 units.
as follows during the last quarter:
Desired inventory, December 31 ..........
50 units
Expected sales, last quarter ................
600 units
Total needs ........................................
650 units
Less inventory, September 30 ..............
400 units
Required production ...........................
250 units
insurance), interest, and obsolescence.
The number of units scheduled for production will not affect the
through the inventory account and income would be a function of the
number of units sold, rather than a function of the number of units
produced.
2. To maximize the Brazilian Division’s operating income, Mr. Cavalas could
produce as many units as storage facilities will allow. By building
inventory to the maximum level of 1,000 units would require production
as follows during the last quarter:
Desired inventory, December 31 ....
1,000 units
Expected sales, last quarter ..........
600 units
Total needs ..................................
1,600 units
Less inventory, September 30 ........
400 units
Required production .....................
1,200 units
Solutions Manual, Chapter 5 55
Problem 5-27 (continued)
maximize the current year’s operating income.
3. By setting a production schedule that will maximize his division’s net
The company’s bonus plan undoubtedly is intended to increase the
company’s profits by increasing sales and controlling expenses. If Mr.
In sum, producing as much as possible so as to maximize the division’s
Problem 5-28 (45 minutes)
1.
Total
Company
Cook-
book
Travel
Guide
Handy
Speller
Sales ......................................
$300,000
$90,000
$150,000
$60,000
Variable expenses:
Printing cost .........................
102,000
27,000
63,000
12,000
Sales commissions................
30,000
9,000
15,000
6,000
Total variable expenses ...........
132,000
36,000
78,000
18,000
Contribution margin ................
168,000
54,000
72,000
42,000
Traceable fixed expenses:
Advertising...........................
36,000
13,500
19,500
3,000
Salaries ...............................
33,000
18,000
9,000
6,000
Equipment depreciation*
9,000
2,700
4,500
1,800
Warehouse rent** ................
12,000
1,800
6,000
4,200
Total traceable fixed expenses .
90,000
36,000
39,000
15,000
Product line segment margin ...
78,000
$18,000
$ 33,000
$27,000
Common fixed expenses:
General sales .......................
18,000
General administration ..........
42,000
Depreciation—office facilities .
3,000
Total common fixed expenses ..
63,000
Net operating income ..............
$ 15,000
*
$9,000 × 30%, 50%, and 20%, respectively.
**
$48,000 square feet × $3 per square foot = $144,000; $144,000 ÷ 12
months = $12,000 per month. $12,000 ÷ 48,000 square feet = $0.25 per
square foot per month.
$0.25 per square foot × 7,200 square feet = $1,800; $0.25 per square
foot × 24,000 square feet = $6,000; and $0.25 per square foot × 16,800
square feet = $4,200.
Solutions Manual, Chapter 5 57
Problem 5-28 (continued)
b.
Cook-
book
Travel
Guide
Handy
Speller
Contribution margin (a) ..................
$54,000
$72,000
$42,000
Sales (b) ........................................
$90,000
$150,000
$60,000
Contribution margin ratio (a) ÷ (b) ..
60%
48%
70%
products. Nevertheless, we cannot say for sure which product should
which suggests that there is no idle capacity. If the equipment is
products.
58 Managerial Accounting for Managers, 4th Edition
Case 5-29 (45 minutes)
1 a. Under variable costing, only the variable manufacturing costs are included in product costs.
Year 1
Year 2
Year 3
Direct materials ....................................
$32
$32
$32
Direct labor ..........................................
20
20
20
Variable manufacturing overhead ..........
4
4
4
Variable costing unit product cost ..........
$56
$56
$56
1 b. The variable costing income statements appear below:
Year 1
Year 2
Year 3
Sales ...........................................................................
$6,000,000
$6,750,000
$5,625,000
Variable expenses:
Variable cost of goods sold @ $56 per unit ..................
4,480,000
5,040,000
4,200,000
Variable selling and administrative @ $3 per unit .........
240,000
270,000
225,000
Total variable expenses ................................................
4,720,000
5,310,000
4,425,000
Contribution margin .....................................................
1,280,000
1,440,000
1,200,000
Fixed expenses:
Fixed manufacturing overhead ...................................
660,000
660,000
660,000
Fixed selling and administrative ..................................
120,000
120,000
120,000
Total fixed expenses .....................................................
780,000
780,000
780,000
Net operating income ...................................................
$ 500,000
$ 660,000
$ 420,000
2a. and 2b.
constant.
Solutions Manual, Chapter 5 59
Case 5-29 (continued)
3 a. The unit product costs under absorption costing:
Year 1
Year 2
Year 3
Direct materials ....................................
$32.00
$32.00
$32.00
Direct labor ..........................................
20.00
20.00
20.00
Variable manufacturing overhead ..........
4.00
4.00
4.00
Fixed manufacturing overhead ..............
*6.60
**8.80
***8.25
Absorption costing unit product cost ......
$62.60
$64.80
$64.25
* $660,000 ÷ 100,000 units = $6.60 per unit.
** $660,000 ÷ 75,000 units = $8.80 per unit.
*** $660,000 ÷ 80,000 units = $8.25 per unit.
3 b. The absorption costing income statements appear below (FIFO):
Year 1
Year 2
Year 3
Sales .....................................................
$6,000,000
$6,750,000
$5,625,000
Cost of goods sold..................................
5,008,000
5,788,000
4,821,500
Gross margin .........................................
992,000
962,000
803,500
Selling and administrative expenses ........
360,000
390,000
345,000
Net operating income .............................
$ 632,000
$ 572,000
$ 458,500
Cost of goods sold computations:
Year 1: 80,000 units × $62.60 per unit = $5,008,000
Year 2: (20,000 units × $62.60 per unit) + (70,000 units × $64.80 per unit) = $5,788,000
Year 3: (5,000 × $64.80 per unit) + (70,000 × $64.25 per unit) = $4,821,500
60 Managerial Accounting for Managers, 4th Edition
Case 5-29 (continued)
4 a. The unit product costs under absorption costing:
Year 1
Year 2
Year 3
Direct materials ....................................
$32.00
$32.00
$32.00
Direct labor ..........................................
20.00
20.00
20.00
Variable manufacturing overhead ..........
4.00
4.00
4.00
Fixed manufacturing overhead ..............
*6.60
**8.80
***8.25
Absorption costing unit product cost ......
$62.60
$64.80
$64.25
* $660,000 ÷ 100,000 units = $6.60 per unit.
** $660,000 ÷ 75,000 units = $8.80 per unit.
*** $660,000 ÷ 80,000 units = $8.25 per unit.
Year 1
Year 2
Year 3
Sales .....................................................
$6,000,000
$6,750,000
$5,625,000
Cost of goods sold..................................
5,008,000
5,799,000
4,818,750
Gross margin .........................................
992,000
951,000
806,250
Selling and administrative expenses ........
360,000
390,000
345,000
Net operating income .............................
$ 632,000
$ 561,000
$ 461,250
Cost of goods sold computations:
Year 1: 80,000 units × $62.60 per unit = $5,008,000
Year 2: (75,000 units × $64.80 per unit) + (15,000 units × $62.60 per unit) = $5,799,000
Year 3: 75,000 × $64.25 per unit = $4,818,750
