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Solutions Manual, Chapter 5 61
Case 5-30 (75 minutes)
1. See the segmented statement on the second following page.
Supporting computations for the statement are given below:
Sales:
Membership dues (20,000 × $100) ..........................
$2,000,000
Assigned to Magazine Subscriptions Division
(20,000 × $20) ....................................................
400,000
Assigned to Membership Division .............................
$1,600,000
Non-member magazine subscriptions (2,500 × $30) .
$ 75,000
Reports and texts (28,000 × $25) ............................
$ 700,000
Continuing education courses:
One-day (2,400 × $75) .........................................
$ 180,000
Two-day (1,760 × $125) .......................................
220,000
Total revenue ..........................................................
$ 400,000
Salary and personnel costs:
Salaries
Personnel Costs
(25% of Salaries)
Membership Division .....................
$210,000
$ 52,500
Magazine Subscriptions Division .....
150,000
37,500
Books and Reports Division ............
300,000
75,000
Continuing Education Division ........
180,000
45,000
Total assigned to divisions .............
840,000
210,000
Corporate staff ..............................
80,000
20,000
Total .............................................
$920,000
$230,000
Case 5-30 (continued)
Some may argue that, except for the $50,000 in rental cost directly
attributed to the Books and Reports Division, occupancy costs are
common costs that should not be allocated. The correct treatment of
the occupancy costs depends on whether they could be avoided in part
by eliminating a division. In the solution below, we have assumed they
could be avoided.
Solutions Manual, Chapter 5 63
Case 5-30 (continued)
Division
Association
Total
Membership
Magazine
Subscriptions
Books &
Reports
Continuing
Education
Sales:
Membership dues ...........................
$2,000,000
$1,600,000
$400,000
Non-member magazine
subscriptions ...............................
75,000
75,000
Advertising ....................................
100,000
100,000
Reports and texts ...........................
700,000
$700,000
Continuing education courses .........
400,000
$400,000
Total revenues ...............................
3,275,000
1,600,000
575,000
700,000
400,000
Expenses traceable to segments:
Salaries .........................................
840,000
210,000
150,000
300,000
180,000
Personnel costs ..............................
210,000
52,500
37,500
75,000
45,000
Occupancy costs ............................
257,000
46,000
46,000
119,000
46,000
Reimbursement of member costs to
local chapters ................................
600,000
600,000
Other membership services ............
500,000
500,000
Printing and paper .........................
320,000
157,500
112,000
50,500
Postage and shipping .....................
146,000
90,000
56,000
Instructors’ fees .............................
80,000
80,000
Total traceable expenses ................
2,953,000
1,408,500
481,000
662,000
401,500
Division segment margin ...................
322,000
$ 191,500
$ 94,000
$ 38,000
$ (1,500)
[The statement is continued on the next page.]
64 Managerial Accounting for Managers, 4th Edition
Case 5-30 (continued)
[Continuation of the segmented income statement.]
Division
Association
Total
Membership
Magazine
Subscriptions
Books &
Reports
Continuing
Education
Division segment margin ...................
322,000
$ 191,500
$ 94,000
$ 38,000
$ (1,500)
Common expenses not traceable to divisions:
Salaries—corporate staff .................
80,000
Personnel costs ..............................
20,000
Occupancy costs ............................
23,000
Postage and shipping .....................
30,000
General and administrative .............
38,000
Total common expenses ....................
191,000
Excess of revenues over expenses .....
$ 131,000
Solutions Manual, Appendix 5A 65
Case 5-30 (continued)
2. While we do not favor the allocation of common costs to segments, the
Arguments against allocation of all costs:
• Allocation bases will need to be chosen arbitrarily because no cause-
• Management may be misled into eliminating a profitable segment
• Segment managers usually have little control over common costs.
no control.
the entire performance report as arbitrary and unfair.
66 Managerial Accounting for Managers, 4th Edition
Appendix 5A
Super-Variable Costing
Exercise 5A-1 (10 minutes)
1. a. The unit product cost under super-variable costing would include
direct materials of $18.
b. The super-variable costing income statement would be:
Sales (20,000 units × $50 per unit) ............
$1,000,000
Variable cost of goods sold
(20,000 units × $18 per unit) ...............
360,000
Contribution margin ..................................
640,000
Fixed expenses:
Direct labor ............................................
$200,000
Fixed manufacturing overhead ................
250,000
Fixed selling and administrative expense ..
80,000
530,000
Net operating income ................................
$ 110,000
Solutions Manual, Appendix 5A 67
Exercise 5A-2 (20 minutes)
1. a. The unit product cost under super-variable costing would include
direct materials of $13.
b. The super-variable costing income statement would be:
Sales (52,000 units × $40 per unit) ............
$2,080,000
Variable cost of goods sold
(52,000 units × $13 per unit) ...............
676,000
Contribution margin ..................................
1,404,000
Fixed expenses:
Direct labor ............................................
$750,000
Fixed manufacturing overhead ................
420,000
Fixed selling and administrative expense ..
110,000
1,280,000
Net operating income ................................
$ 124,000
2. a. The unit product cost under variable costing would be:
Direct materials..............................................................
$13.00
Direct labor ($750,000 ÷ 60,000 units) ...........................
12.50
Variable costing unit product cost ....................................
$25.50
Sales (52,000 units × $40 per unit) ...........
$2,080,000
Variable cost of goods sold
(52,000 units × $25.50 per unit) ..........
1,326,000
Contribution margin .................................
754,000
Fixed expenses:
Fixed manufacturing overhead ...............
420,000
Fixed selling and administrative
expense .............................................
110,000
530,000
Net operating income ...............................
$ 224,000
68 Managerial Accounting for Managers, 4th Edition
Exercise 5A-2 (continued)
3. The difference between the super-variable costing and variable costing
net operating incomes is explained as follows:
= 8,000 units
Super-variable costing net operating income ..................
$124,000
Add direct labor cost deferred in inventory under
variable costing .........................................................
100,000
Variable costing net operating income ...........................
$224,000
