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453
CHAPTER 14
DECENTRALIZED OPERATIONS
CLASS DISCUSSION QUESTIONS
1. In a cost center, the department manager is
responsible for and has authority over costs
4. A cost center manager is not responsible for
making decisions concerning sales or the
7. Revenues and expenses are considered in
computing the return on investment because
8. A division of a decentralized company could
be considered the least profitable, even
11. The objective of transfer pricing is to en-
courage each division manager to work in
division’s variable cost per unit.
454
EXERCISES
E14–1
Schedules of supporting calculations (answers in italics; the solution requires
working from the department level, up to the plant level, then to the vice president
of production level):
RUNQUIST COMPANY
Budget Performance Report—Vice President, Production
For the Month Ended April 30
Plant Budget Actual Over Budget (Under) Budget
Daytona $2,300,000 $2,287,900 $(12,100)
RUNQUIST COMPANY
Budget Performance Report—Manager, Oxford Plant
For the Month Ended April 30
Department Budget Actual Over Budget (Under) Budget
455
E14–1, Concluded
RUNQUIST COMPANY
Budget Performance Report—Supervisor, Condenser Assembly
For the Month Ended April 30
Cost Budget Actual Over Budget (Under) Budget
Factory wages $ 82,000 $ 95,500 $ 13,500
b. MEMO
To: Jeff Kitchens, Vice President of Production
The Oxford plant has experienced a budget overrun, while the Daytona and
E14–2
VINTAGE CONSTRUCTION COMPANY
Divisional Income Statements
For the Year Ended October 31, 20Y3
Commercial Residential
Division Division
Sales ................................................................................... $ 6,250,000 $ 1,875,000
456
E14–3
Expense Activity Bases
a. Accounts Receivable Number of invoices, number of customers
E14–4
457
E14–5
a. Government
Residential Commercial Contract Total
Number of payroll checks:
Weekly payroll × 52 ................... 4,160 3,120 1,300
Government
Residential Commercial Contract Total
Service department charges:
Payroll Department .................... $20,900 $15,390 $ 6,460 $ 42,750
c. Residential’s service department charge is higher than the other two divi-
sions because Residential is a heavy user of service departments. Residential
458
E14–6
a. Help desk: calls 5,000
$135,000 = $27.00 per call
b. February charges to the Electronics sector:
459
E14–7
POWER SPORTS COMPANY
Divisional Income Statements
For the Year Ended December 31, 20Y7
Wholesale Division Retail Division
Revenues ....................................... $24,600,000 $13,750,000
460
E14–8
a. The reported operating income does not accurately measure performance
because the service department charges are based on revenues. Revenues are
b.
PANDA AIRLINES INC.
Divisional Income Statements
For the Year Ended April 30, 20Y9
Passenger Division Cargo Division
Revenues ....................................... $7,500,000 $5,000,000
Note 1: Passenger Division, ($500,000 ÷ 800 personnel trained) × 600
461
E14–9
ON-DEMAND SPORTS CO.
Divisional Income Statements
For the Year Ended November 30, 20Y1
Action Team
Sports Sports
Division Division
Sales ........................................................................... $18,500,000 $30,600,000
Operating income before service
department charges ............................................ $ 5,050,000 $ 7,850,000
Supporting Schedule:
Service Department Charges
Action Team
Sports Sports
Division
Division Total
Advertising expense ....................................... $1,200,000 $1,800,000 $3,000,000
462
E14–10
a. Retail Division: 20% ($8,000,000 ÷ $40,000,000)
E14–11
a.
Retail Commercial Internet
Division Division Division
