Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
Chapter 22
Performance Measurement and
Responsibility Accounting
QUICK STUDIES
Quick Study 22-1 (10 minutes)
1.
a
4.
c
2.
f
5.
d
3.
b
6.
e
Quick Study 22-2 (10 minutes)
Controllable costs for the repair department would include:
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Quick Study 22-3 (10 minutes)
NOTE: Shaded numbers are computed.
Controllable Costs
Actual
Over (Under) Budget
Direct materials ………..
$51,600
$(1,200)
Direct labor ………………
Quick Study 22-4 (10 minutes)
NOTE: Shaded numbers are computed.
Plant Manager, Ohio Factory
Controllable Costs
Budgeted
Actual
Over (Under) Budget
Salaries, department managers……..
$ 20,000
$ 20,000
$ 0
Rent …………………………………………
8,500
8,500
0
2,200
2,400
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Quick Study 22-5 (5 minutes)
1.
d
3.
b
Quick Study 22-6 (10 minutes)
Allocation of $100,000 of advertising cost
Department
Sales
Percent of Total
Cost Allocated
1…………………..
$220,000
27.5% ($220,000/$800,000)
$ 27,500
Total …………….
$100,000
Quick Study 22-7 (10 minutes)
Allocation of $160,000 of office cost.
Department
Employees
Percent of Total
Cost Allocated
Mixing ………….
300
60% (300 employees/500 employees)
$ 96,000
Total …………….
Quick Study 22-8 (10 minutes)
Allocation of $200,000 of maintenance cost
Department
Square Feet
Percent of Total
Cost Allocated
Mixing ………..
22,000
55.0% (22,000 sq ft/40,000 sq ft)
$ 110,000
18,000
Total …………..
40,000
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Quick Study 22-9 (15 minutes)
The company allocates $84,500 rent to the first floor, and $45,500 to the second
floor. It then allocates rent expense to the departments as follows.
First Floor
Sq. Feet
Percent of Total
Cost Allocated
Jewelry Dept. …………..
1,440
30% (1,440 sf/4,800 sf)
$25,350
Cosmetics Dept. ………
3,360
Second Floor
Sq. Feet
Percent of Total
Cost Allocated
Housewares Dept. ……
2,016
42% (2,016 sf/4,800 sf)
$19,110
Tools Dept. ………………
20% ( 960 sf / 4,800 sf)
1,824
Quick Study 22–10 (15 minutes)
Dept. A
Dept. B
Dept. C
Sales ……………………………………..
$53,000
$180,000
$84,000
Cost of goods sold ………………..
34,185
103,700
49,560
37,060
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Quick Study 22–11 (15 minutes)
a.
Departmental Income Statements
Food
Beverage
Sales ……………………………………………………..
$120,000
$80,000
Cost of goods sold …………………………………
72,000
44,000
Gross profit …………………………..……………….
48,000
36,000
Expenses
14,500
28,000
$14,200
b.
Departmental Contribution to Overhead
Food
Beverage
Sales ……………………………………………………..
$120,000
$80,000
Cost of goods sold …………………………………
72,000
44,000
Gross profit …………………………..……………….
48,000
36,000
14,500
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Quick Study 22-12 (10 minutes)
Investment Center
Income
Average Assets
Return on Investment
Cameras ……………….
$4,500,000
$20,000,000
22.5%
1,500,000
12.0%
Computers ……………
Quick Study 22-13 (10 minutes)
Investment center
Cameras
Phones
Computers
Income …………………………..
$4,500,000
$1,500,000
$ 800,000
Less: Target income
_________
_________
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Quick Study 22-14 (15 minutes)
Note: Computations are shaded.
Investment Center
A
B
Sales …………………………………………
$3,000,000
$10,400,000
Income ……………………………………..
$ 240,000
$ 624,000
$1,200,000
Supporting Work
Investment center A:
Profit margin = Income / Sales
0.08 = $240,000 / Sales, thus Sales = $3,000,000
Investment center B:
Return on investment = Profit margin x Investment turnover
0.12 = Profit margin x 2.0
Thus,
Profit margin = 0.12 / 2.0 = 0.06, or 6%
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Quick Study 22-15 (10 minutes)
Profit margin = $ 80,000 / $2,000,000 = 4%
Quick Study 22-16 (5 minutes)
1.
Customer wait time ………………………………………………
Customer
2.
Days of employee absences …………………………..……
Innovation and learning
3.
4.
Innovation and learning
5.
Innovation and learning
6.
Internal process
7.
8.
Gallons of water reused ……………………………………….
Internal process
Quick Study 22-17 (5 minutes)
1. U.S. division exceeded the occupancy target for the current year.
3.
Process Perspective Actual Goal Signal
Occupancy—U.S. 87% 85%
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
Quick Study 22-18 (10 minutes)
$450 per windshield
Explanation:
$450 per windshield should be used as the transfer price when there is no
excess capacity. This is a market-based transfer price.
Quick Study 22–19 (10 minutes)
$200 to $450 per windshield
Explanation:
$200 to $450 per windshield is the range of a transfer price that should be
used when the Assembly division buys from the Windshield division.
Quick Study 22–20 (10 minutes)
1.
Sparta Co.
Athens Co.
Days’ sales in accounts receivable …..
32
45
Days’ sales in inventory …………………..
20
Days’ payable outstanding ……………….
2. Sparta Co. is more effective at managing cash based.
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Rental value
Percent of rental value
Allocated cost
Unit A
$3,340*
$3,340/$8,350 = 40%
$150,000
$375,000
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EXERCISES
Exercise 22-1 (15 minutes)
Responsibility Accounting Performance Report
Manager, Snowmobile Department
For Year Ended December 31
Controllable Costs
Budgeted
Actual
Over (Under) Budget
Direct materials ………………….
$19,500
$19,420
$ (80)
Exercise 22-2 (15 minutes)
Responsibility Accounting Performance Report
Manager, ATV Department
For Year Ended December 31
Controllable Costs
Budgeted
Actual
Over (Under) Budget
Direct materials ……………………
$27,500
$28,820
$1,320
920
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Exercise 22-3 (15 minutes)
a. Office: $24,000 total expenses to allocate
Department
Sales
Percent of Total
Cost Allocated
Books …………….
$495,000
55% ($495,000/$900,000)
$13,200
Magazines ………
Newspapers ……
Totals ……………..
b. Purchasing: $34,000 total expenses to allocate
Department
Purchase Orders
Percent of Total
Cost Allocated
Books …………….
516
43% (516 p.o./ 1,200 p.o.)
$14,620
Magazines ………
Newspapers ……
Totals ……………..
$34,000
Exercise 22-4 (15 minutes)
Allocation of $1,200 wages between two departments
Department
Hours Worked*
Percent of Total
Cost Allocated
Jewelry ………….
57
75% (57 hrs/76 hrs)
$ 900
Totals …………….
76
$1,200
*Computation of hours worked in two departments
Jewelry department
Selling ………………………
51
Organizing ………………..
57 hours
Cosmetics department
Selling ………………………
12
Organizing ………………..
Total hours ………………….
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Exercise 22-5 (25 minutes)
Allocation of three indirect expenses to four departments
Supervision expense, $82,500 to allocate
Department
Employees
% of Total
Cost
Materials ……………………..
27
18%
$14,850
Manufacturing ……………..
63
42%
Totals ………………………….
$82,500
Utilities expense, $50,000 to allocate
Department
Square Feet
% of Total
Cost
Materials ……………………..
25,000
25%
$12,500
Personnel ……………………
Manufacturing ……………..
55,000
55%
Packaging …………………..
Totals ………………………….
100,000
$50,000
Insurance expense, $22,500 to allocate
Department
Asset Values
% of Total
Cost
Materials ……………………..
$ 6,000
10%
$ 2,250
Personnel ……………………
Manufacturing ……………..
37,800
63%
Packaging …………………..
Totals ………………………….
$60,000
$22,500
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Exercise 22-6 (20 minutes)
1. Utilities expense: $64,000 to allocate to the four departments
Square Feet
Percent of Total
Cost Allocated
Personnel ………..
1,120
8%
$ 5,120
1,400
Shoes ………………
7,140
2. Personnel expense: $23,120 ($18,000 direct exp. + $5,120 utilities) to
allocate to operating departments
Employees
Percent of Total
Cost Allocated
Shoes ………………
9
75%
$17,340
5,780
12
3. Office expense: $31,400 ($25,000 direct exp. + $6,400 utilities) to
allocate to operating departments
Sales
Percent of Total
Cost Allocated
Shoes ………………
$273,000
78%
$24,492
6,908
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
Exercise 22-7 (20 minutes)
1.
Departmental Contribution to Overhead
For Year Ended December 31
Acoustic
Electric
Combined
Sales ……………………………………………………
$112,500
$105,500
$218,000
Cost of goods sold ……………………………….
55,675
66,750
122,425
Salaries ………………………………………………
Supplies used …………………………………….
2. No.
Electric guitar department should not be eliminated. It contributes
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Exercise 22-8 (20 minutes)
1.
Departmental Income Statement
For Year Ended December 31
Ski Dept.
Sales……………………………………………………………………………
$605,000
Cost of goods sold ………………………………………………………
425,000
2.
Departmental Contribution to Overhead
For Year Ended December 31
Ski Dept.
Sales……………………………………………………………………………
$605,000
Cost of goods sold ………………………………………………………
425,000
3. No. The Ski department should not be eliminated. It generates a
positive contribution of $26,000 to overhead.
1367
Exercise 22-9 (15 minutes)
1.
Location
Income
Average assets
Return on investment
A ………………..
$160,000
$1,000,000
16%
2. Open the B location. B is preferred because its return on investment
Exercise 22–10 (20 minutes)
1.
Investment center
Income
Average assets
Return on investment
Electronics ………….
$2,880,000
$16,000,000
18%
17%
2.
Investment center
Electronics
Sporting goods
Income ……………………………..
$2,880,000
$2,040,000
Less target income
_________
Residual income ……………….
3. Yes. The Electronics center should accept the new opportunity because
it will generate positive residual income. The return on investment of 15%
for this new investment is greater than the target return of 12%.
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Exercise 22-11 (15 minutes)
1.
Investment Center
Income
Sales
Profit margin
Electronics ………….
$2,880,000
$40,000,000
7.2%
Sporting goods ……
Investment Center
Sales
Average assets
Investment turnover
Electronics ………….
$40,000,000
$16,000,000
2.50
Sporting goods ……
20,000,000
12,000,000
1.67
2. Sporting Goods. The Sporting goods department generates the larger
Exercise 22-12 (20 minutes)
1.
Division
Income
Average assets
Return on investment
2.
Division
Income
Sales
Profit margin
Beverage …………
$600
$3,000
20.0%
Cheese …………….
3.
Division
Sales
Average assets
Investment turnover
Beverage …………
$3,000
$ 5,000
0.60
Cheese …………….
0.50
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Exercise 22-13 (10 minutes)
Beverage
Cheese
Income ………………………………………..
$600
$800
Less target income
Exercise 22-14 (10 minutes)
1. Return on investment (ROI) = $1,000,000/$12,500,000 = 8.0%
Exercise 22-15 (10 minutes)
1.
Geographic division
Income
Sales
Profit margin
Americas ……………….
$300,000
$1,000,000
30%
2. Americas. The Americas performed best based on its higher profit
margin.
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Exercise 22–16 (20 minutes)
a. Strategy 1—Increase advertising
Sales …………………………………………………….
$4,600,000*
Cost of goods sold ………………………………..
2,800,000
Expenses ………………………………………………
1,225,000**
$ 575,000
Profit margin = $575,000 = 12.5%
$4,600,000
Strategy 2—Develop more efficient manufacturing process
Sales ……………………………………………………
$4,000,000
Cost of goods sold ……………………………….
2,660,000*
b. Strategy 1.
Strategy 1, to increase advertising, is expected to produce a 12.5% profit
margin, which is greater than the 10% target.