Problem 22-1B (Continued)
c.
Responsibility Accounting Performance Report
Plant Manager, Chicago Plant
For the Month of April
Budgeted
Actual
Over (Under)
Amount
Amount
Budget
Controllable Costs
Dept. manager salaries ………
$ 104,000
$ 101,500
$ (2,500)
Utilities ………………………………
48,000
55,200
7,200
Building rent ………………………
80,000
82,300
2,300
Other office salaries …………..
40,000
35,200
(4,800)
Other office costs ………………
21,000
29,800
8,800
Refrigerator department ……..
(11,300)
Dishwasher department ……..
Problem 22-2B (60 minutes)
Part 1
Average occupancy cost = $465,000 / 20,000 sq. ft. = $23.25 per sq. ft.
These costs are assigned to Style’s department as follows
Square
Rate
Total
Part 2
Market rates are used to allocate occupancy costs for the building rent.
Lighting and cleaning costs are allocated to the departments on all three
floors at the average rate per square foot. Costs assigned to each class are:
Occupancy Costs
Total
Costs
Value-Based
Costs
Usage–Based
Costs
Building rent ………………………
$400,000
$400,000
Lighting expense ……………….
25,000
$25,000
Cleaning expense ………………
40,000
_______
40,000
Totals ………………………………..
$465,000
$400,000
$65,000
Value-based costs are allocated in two steps
(i) Compute market value of each floor
Floor
Square
Footage
Value per
Sq. Ft.
Total
First floor …………………………..
Basement floor …………………..
Total market value ……………..
Problem 22-2B (Continued)
(ii) Allocate the $400,000 to each floor based on its percent of market value
Floor
Market
Value
% of
Total
Allocated
Cost
Cost per
Sq. Ft.
First floor …………………………..
$300,000
60%
$240,000
$32.00
Second floor ………………………
150,000
30
120,000
16.00
Basement floor …………………..
Totals …………………………..
100%
Usage-based costs allocation rate = $65,000 / 20,000 sq. ft.
= $3.25 per sq. ft.
Total allocation rates for the departments on all three floors are
Floor
Value
Usage
Total
First floor …………………………
$32
$3.25
$35.25
Second floor …………………….
16
3.25
19.25
Basement floor ………………..
8
3.25
11.25
These rates are applied to allocate occupancy costs to Style’s department:
Department
Square
Footage
Rate
Total
Problem 22-3B (70 minutes)
BONANZA ENTERTAINMENT
Forecasted Departmental Income Statements
For Year Ended December 31, 2020
Movies
Video
Games
Compact
Discs
Combined
Sales …………………………..……………
$648,000
$216,000
$300,000
$1,164,000
(1)
Cost of goods sold ……………………
453,600
166,320
195,000
814,920
(2)
Gross profit ………………………………
194,400
49,680
105,000
349,080
Direct expenses
Sales salaries ………………………….
37,000
15,000
18,000
70,000
Advertising ……………………………..
12,500
6,000
10,000
28,500
Store supplies used …………………
4,320
1,080
2,000
7,400
(3)
Depreciation of equipment ………
4,500
3,000
1,200
8,700
Total direct expenses ………………
58,320
25,080
31,200
114,600
Allocated expenses
Rent expense ………………………….
30,750
6,000
13,250
50,000
(4)
Utilities expense ……………………..
5,535
1,080
2,385
9,000
(4)
Share of office dept. expenses …
47,345
15,725
21,930
85,000
(5)
Total allocated expenses …………
83,630
22,805
37,565
144,000
Total expenses ………………………….
141,950
47,885
68,765
258,600
Net income ……………………………….
$ 52,450
$ 1,795
$ 36,235
$ 90,480
Supporting Computations—coded (1) through (5) in statement above
Note 1 (Sales)
2019 sales ……………………………….
Growth rate (8% increase) ……….
Video
Compact
Note 2 (Cost of Goods Sold)
2019 cost of goods sold …………..
2019 sales ……………………………….
2019 cost as % of sales ……………
2020 sales ………………………………
$300,000
2020 cost as % of sales …………..
Video
Compact
Problem 22-3B (Continued)
Note 3 (Store Supplies Used)
Movies
Video
Games
Compact
Discs
2019 store supplies used ………..
$ 4,000
$ 1,000
Growth rate (8% increase) ……….
x 108%
x 108%
2020 store supplies ………………..
$ 4,320
$ 1,080
$ 2,000
Note 4 (Rent and Utilities)
Movies
Games
Discs
2019 rent ………………………………..
Percent of total ………………………
61.5%
12.0%
26.5%
Video
Compact
Note 5 (Office Department Expenses)
Movies
Video
Games
Compact
Discs
2020 sales ………………………………
$648,000
$216,000
$300,000
Percent of total sales* …………….
55.7%
18.5%†
25.8%
Problem 22-4B (45 minutes)
Part 1
SADAR COMPANY
Departmental Contribution Statements
Guitars
Pianos
Sales ………………………………….
$370,500
$279,500
Cost of goods sold …………….
320,000
175,000
Gross profit ……………………….
50,500
104,500
Direct expenses
Salaries ……………………………..
35,000
25,000
Maintenance ………………………
Utilities ………………………………
Insurance …………………………..
12,000
5,000
4,200
10,000
4,500
3,700
Total direct expenses …………
56,200
43,200
Departmental contributions to
Advertising* ……………………….
16,200
Total indirect expenses ………
Problem 22-4B (Concluded)
**
Salaries allocation:
Employees
%
Amount
Allocated
Guitars
3
60%
$27,000
$16,200
Pianos
2
40%
27,000
10,800
Total
5
100%
$27,000
***
Office expenses allocation:
Sq. ft.
%
Amount
Allocated
Guitars
5,000
62.5%
$3,200
$2,000
Pianos
3,000
37.5%
3,200
1,200
Total
8,000
100.0%
$3,200
Part 2
Problem 22-5BC (60 minutes)
Part 1
Allocations of joint cost on the basis of sales values
Land preparation, seeding, and cultivating: $700,000
Grade
Sales
Value
Percent of
Total
Allocated
Cost
No. 1 ………………………….
$ 900,000
62.5%
$437,500
No. 2 ………………………….
500,000
34.7
242,900
No. 3 ………………………….
40,000
2.8
19,600
Total ………………………….
$1,440,000
100.0%
$700,000
Harvesting, sorting, and grading: $40,000
Grade
Value
of Total
Cost
No. 1 ………………………….
62.5%
No. 2 ………………………….
34.7
No. 3 ………………………….
40,000
2.8
Total ………………………….
$1,440,000
100.0%
Sales
Percent
Allocated
Delivery: $17,000 to Grade Nos. 1 & 2
Grade
Sales
Value
Percent
of Total
Allocated
Cost
No. 1 ………………………….
$ 900,000
64.3%
$10,931
No. 2 ………………………….
35.7
No. 3 [identified] …………..
Problem 22-5BC (Continued)
Part 2
RITA AND RICK REDDING
Income Statement
For Year Ended December 31, 2019
No. 1
No. 2
No. 3
Combined
Sales (by grade)
No. 1: 500,000 lbs. @ $1.80 ……….
$900,000
No. 2: 400,000 lbs. @ $1.25 ……….
$500,000
No. 3: 100,000 lbs. @ $0.40 ……….
$40,000
Total sales ……………………………….
$1,440,000
Costs
Land preparation, seeding,
and cultivating ……………………….
437,500
242,900
19,600
700,000
Harvesting, sorting & grading …..
25,000
13,880
1,120
40,000
Delivery ……………………………………
10,931
6,069
3,000
20,000
Total costs ……………………………….
473,431
262,849
23,720
760,000
Net income (loss) ……………………….
$426,569
$237,151
$16,280
$680,000
SERIAL PROBLEM — SP 22
Serial Problem, Business Solutions (10 minutes)
1. and 2.
1st Qrtr
2nd Qrtr
Days’ sales in accounts receivable…
19
21
Days’ sales in inventory.………………
25
24
Days’ payable outstanding…….……..
(31)
(28)
Cash conversion cycle………………..
13
17
3. The cash conversion cycle increased from the 1st to the 2nd quarter. The
workstation manufacturing division has become less effective at managing
cash.
Company Analysis — AA 22-1
$ millions
Sept. 30, 2017
Sept. 24, 2016
Comparative Analysis — AA 22-2
($ millions)
1. Profit margin = Net income/Sales
Apple = $48,351 / $229,234 = 21.1%
Google = $12,662 / $110,855 = 11.4%
3. Apple performed better on each of these measures.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
Global Analysis — AA 22-3
Samsung
(millions of Korean won)
Dec. 31, 2017
Dec. 31, 2016
Total assets ………………
¥301,752,090
¥262,174,324
Operating profit …………
53,645,038
2. Samsung return on investment = ¥53,645,038 = 19.03%
¥281,963,207
3. Apple return on investment = $61,344 = 17.60%
$348,503*
*Average assets = $375,319 + $321,686 = $348,503
2
4. Samsung had the higher return on investment for 2017.
Ethics Challenge — BTN 22-1
1. There is an ethical concern in this situation. Pincus is taking actions
he would not otherwise take. He believes that “minor compromises” in
his behavior do not significantly affect clients. However, the problem is
serious because it can have potential long-term implications for clients.
Moreover, a consequence of minor compromises on service quality can
2. Given that Pincus is aware of his behavior, its potential consequences,
and the source of what’s behind his behavior (in this case the focus by
management on meeting the quarterly responsibility performance
budget), he can approach his superiors (at least one or two he trusts)
and explain the situation to them. Pincus must clearly point out the
potential negative implications of this “induced behavior” in terms of
3. Super Security (the employer) is ultimately responsible for any action
taken by its employees, including Pincus. Management must establish
an ethical code of conduct to ensure that department managers do not
engage in unethical behaviors that compromise the security of its
Communicating in Practice — BTN 22-2
Sample solution
MEMORANDUM
TO: Name, Store Manager
FROM: Your Name, National Office Manager
SUBJECT: New Performance Reporting
DATE: Current Date
All current and future periods’ performance reports for all managers
include an allocation of home office expenses. These expenses will be
assigned as a percent of store sales.
The home office provides several services to all its stores. These include
assistance with marketing, product selection, distribution, and volume
discounts. These services can help make the local store more profitable
than a store would be without these services.
Taking It to the Net — BTN 22-3
Instructor note: The objective of this assignment is for students to be exposed to the
different accounting and business applications with spreadsheets.
1. The tutorials identified and read by the students will vary. For example,
one tutorial is titled “ROI and ROE Performance Measure.” A student
can download an example of this and many other tutorials such as
“Forecasting Techniques” and “Comparative Ratio Analysis.”
Teamwork in Action — BTN 22-4
Instructor note: Student answers will vary. The key is to look for clear organizational
structure and sound thinking in designing performance reports.
1. The student must make decisions about geographic area, type of
business segment, and reporting structure. The objective is to have
them think about the many different ways a business can set up
responsibility centers.
For example, product line managers can report to a central manager for
each area and then product lines can be later combined (at a higher
level). Another example would have each line report to one level of
management by region, and the region report to top management.
Many other organizational designs are possible.
Entrepreneurial Decision — BTN 22-5
1. Departmental income statements can be prepared for each franchisee
once expenses have been allocated to it. The expenses will include both
direct expenses of the department and that department’s share of the
indirect costs. Each department of the company will also have revenues
that can be traced to it. Management can then determine each
department’s net income or loss.
Hitting the Road — BTN 22-6
1. [Student answers will vary for part (1).] One suggested responsibility
accounting reporting framework is to have (1) concessions and (2)
categories of movies such as comedies, dramas, and so forth. The
movie departments would report to one manager in charge of all movies.
This “movies” manager along with the concessions manager would
report to top management.
2. One suggested proposal is
Expense
Allocation Basis