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12-35
PROBLEM 12-50 (45 MINUTES)
1.
a.
The semiannual installments and total bonus for the Charter Division are
calculated as follows:
COMMLINE EQUIPMENT CORPORATION: CHARTER DIVISION
GAIN-SHARING BONUS CALCULATION
FOR THE YEAR ENDED DECEMBER 31, 20X1
Second installment, July–December:
$17,600
b.
The employees of the Charter Division are likely to be frustrated by the new plan,
since the division bonus is more than $40,000 less than that of the previous
12-36
PROBLEM 12-50 (CONTINUED)
2.
a.
The semiannual installments and total bonus for the Mesa Division are
calculated as follows:
COMMLINE EQUIPMENT CORPORATION: MESA DIVISION
GAIN-SHARING BONUS CALCULATION
FOR THE YEAR ENDED DECEMBER 31, 20X1
First installment, January–June:
Profitability (.02 $684,000) .................................
$13,680
Second installment, July-December:
Profitability (.02 $812,000) .................................
$16,240
Rework [(.02 $812,000) – $16,000] .....................
-0-*
b.
The employees of the Mesa Division should be as satisfied with the new plan as
with the old plan, because the bonus was almost equivalent. However, there is
12-37
PROBLEM 12-50 (CONTINUED)
3.
Harrington's revised bonus plan for the Charter Division fostered improvements
including the following:
• Increase of 1.9 percent in on-time deliveries
However, operating income as a percentage of sales has decreased from 11 to 10
percent.
The Mesa Division's bonus has remained at the status quo. The effects of the
revised plan at CommLine Equipment Corporation have been offset by the following:
These results suggest that the gain-sharing bonus plan needs revisions.
Suggestions include the following:
12-38
PROBLEM 12-51 (60 MINUTES)
Chapter 12 - Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
12-39
SOLUTIONS TO CASES
CASE 12-52 (60 MINUTES)
1.
Segmented income statement by geographic areas:
NORTH AMERICAN INDUSTRIES
SEGMENTED INCOME STATEMENT BY GEOGRAPHIC AREAS
FOR THE FISCAL YEAR ENDED APRIL 30, 20x4
Geographic Areas
United States
Canada
Mexico
Unallocated
Total
Sales in unitsa
Furniture ....................
32,000
8,000
40,000
80,000
Revenueb
Furniture ....................
$ 512,000
$ 128,000
$ 640,000
$1,280,000
Sports ........................
1,440,000
1,440,000
720,000
3,600,000
Variable costsc
Furniture ....................
$ 384,000
$ 96,000
$ 480,000
$ 960,000
Fixed costs
Production
overheadd ...............
$ 165,000
$ 135,000
$ 200,000
$ 500,000
12-40
CASE 12-52 (CONTINUED)
SUPPORTING CALCULATIONS
aSales in units
Total Units
% of Sales
=
Units Sold
United States
Furniture ............................................
80,000
.40
32,000
bRevenue
Units Sold
Unit Price
Revenue
United States
Furniture .............................................
32,000
$16.00
$ 512,000
Chapter 12 - Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
12-41
CASE 12-52 (CONTINUED)
cVariable costs
Units
Sold
(1)
Variable
Production
Cost/Unit
(2)
Variable
Selling
Cost/Unit
(3)
Total
Variable
Cost
(1) [(2) + (3)]
United States
Furniture ...........................
32,000
$8.00
$4.00
$ 384,000
Canada
Furniture ...........................
8,000
8.00
4.00
96,000
dProduction overhead
Total
Production
Overhead
Area
Variable
Costs
Proportion
of
Total
Allocated
Production
Cost
12-42
CASE 12-52 (CONTINUED)
eDepreciation expense
Total
Depreciation
Area
Units
Sold
Proportion
of
Total
Allocated
Depreciation
United States ........................
$400,000
84,000
33.6%
$134,400
2.
Areas where the company’s management should focus its attention in order to
improve corporate profitability include the following:
• The income statement by product line shows that the furniture product line may
not be profitable. The furniture product line does have a positive contribution.
However, the fixed costs assigned to the product line result in a loss. Management
should investigate:
—The possibility of increasing the selling price of these products.
Chapter 12 - Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
12-43
CASE 12-52 (CONTINUED)
• The income statement by geographic area shows that the Mexican market is the
least profitable sales area. In order to improve the profit margin in the Mexican
market, management should:
12-44
CASE 12-53 (45 MINUTES)
1. Segmented income statement:
ELITE CLASSIC CLOTHES: NEW ENGLAND REGION
SEGMENTED INCOME STATEMENT
FOR MAY
Coastal
District
New Haven
Store
Boston
Store
Sales .................................................................
Operating expenses:
Variable selling .......................................
$3,000,000
$ 180,000
$1,200,000
$ 72,000
$1,050,000
$ 63,000
12-45
CASE 12-53 (CONTINUED)
Supporting calculations:
Coastal District
New Haven Store
Boston Store
Sales .........................................
Given
$3,000,000 x .40
$3,000,000 x .35
3. The impact of the responsibility-accounting system and bonus structure on the
managers' behavior and the effect of this behavior on the financial results for the two
stores include the following:
12-46
CASE 12-53 (CONTINUED)
(b) Boston Store:
• Because the manager of the Boston store is motivated to maximize operating income,
4. The assistant controller's actions violate several standards of ethical conduct for
management accountants, including the following:
Competence:
Integrity:
Credibility:
Chapter 12 - Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
12-47
FOCUS ON ETHICS (See page 522 in the text.)
There is plenty of anecdotal evidence that managers may engage in a short-sighted view
of cost cutting, as depicted in this scenario.
If truly motivated by the chance of promotion, rather than by the need for a “lean
company,” then Winters is not acting ethically in making these cost cuts. He is ranking
potential short-term personal gain as more important than the long-term value of the
