Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
1384
Problem 22-3B (35 minutes)
Part 1
BONANZA
Departmental Contribution to Overhead
For Year Ended December 31
Movies
Video Games
Combined
Sales ………………………………………..
$600,000
$200,000
$800,000
Cost of goods sold ……………………
420,000
154,000
574,000
Gross profit ………………………………
180,000
46,000
226,000
Part 2
No. Based on its positive contribution to overhead of $21,000, the video
games department should not be eliminated.
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
1385
Problem 22-4B (20 minutes)
Part 1
Allocation of $15,000 advertising expense
Department
Sales
Cost Allocated
Guitar …………
$370,500
$ 8,550
Allocation of $3,200 rent expense
Department
Square Feet
Cost Allocated
Guitar …………
5,000
$2,000
Part 2
SADAR COMPANY
Departmental Income Statements
For Year Ended December 31
Guitar
Sales …………………………………………….
$370,500
Cost of goods sold ………………………..
320,000
Gross profit …………………………………..
50,500
Expenses
35,000
12,000
Supplies used ……………………………..
2,000
61,750
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
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Problem 22–5BA (20 minutes)
Preliminary calculation
Land preparation, seeding, and cultivating ….
$700,000
Harvesting, sorting, and grading ………………..
Total joint costs ……………………………………….
$740,000
Part 1
Allocation of $740,000 joint costs on the basis of sales values
Grade
Sales Value
Percent of Total
No. 1 …………….
$ 600,000
60.0%
Part 2
Gross profit computation
Sales Value
Gross Profit
$ 600,000
$156,000
$260,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
SERIAL PROBLEM — SP 22
Serial Problem, Business Solutions (10 minutes)
1. and 2.
(1)
(2)
1st Quarter
2nd Quarter
Days’ sales in accounts receivable …………….
19
21
Days’ payable outstanding ………………………..
3. Worsened.
Explanation: The cash conversion cycle increased from the 1st to the
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
Company Analysis — AA 22-1
1.
Current year ($ millions):
Days’ sales in accounts receivable ….
$𝟐𝟓,𝟑𝟐𝟔
$𝟏𝟔𝟏,𝟖𝟓𝟕 𝐱 𝟑𝟔𝟓
57 days
Prior year ($ millions):
Days’ sales in accounts receivable …..
$𝟐𝟎,𝟖𝟑𝟖
$𝟏𝟑𝟔,𝟖𝟏𝟗 𝐱 𝟑𝟔𝟓
56 days
2. Yes. The company did manage cash more effectively in the current
year. The cash conversion cycle moved from 36 days to 34 days.
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
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Comparative Analysis — AA 22-2
($ millions)
1. Profit margin = Income/Sales
2. Investment turnover = Sales
Average assets
3. Apple. Apple performed better on investment turnover; 0.74 is superior
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
Extended Analysis — AA 22-3
($ millions)
1. Samsung:
Days’ sales in accounts receivable ….
$𝟑𝟎,𝟏𝟒𝟒
$𝟏𝟗𝟕,𝟔𝟗𝟏 𝐱 𝟑𝟔𝟓
56 days
Google:
Days’ sales in accounts receivable ….
$𝟐𝟓,𝟑𝟐𝟔
$𝟏𝟔𝟏,𝟖𝟓𝟕 𝐱 𝟑𝟔𝟓
57 days
2. Google. Google was more effective at managing cash in the current
year; a conversion cycle of 34 days is superior than Samsung’s 100
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
DISCUSSION QUESTIONS
1. Many companies are divided into departments when they become too large to be
effectively managed as single units. This division into departments is often needed
2. Operating departments are directly involved in manufacturing or selling the products
3. Controllable costs of a department are those that the department’s manager has the
power to control or influence. The manager does not have the power to control or
4. Cost center managers are usually evaluated on their success in controlling actual
costs compared to budgeted costs.
5. Reports to higher-level managers are usually less-detailed in responsibility
accounting because: (1) lower-level managers are responsible for detailed costs, and
(2) detailed reports can distract from bigger issues facing the higher-level managers.
7. Profit center managers are usually evaluated on their success in generating income.
8. Direct expenses of a department are expenses that are incurred for the sole benefit of
9. a. Sales of the departments or the number of employees in each department.
b. Square feet of floor space.
11. The four perspectives of the balanced scorecard are:
*Customers—what do they think of us?
*Internal processes—which operations are crucial to customer needs?
*Innovation and learning—how can we improve?
*Financial—what do our owners think of us?
12. A transfer price is an amount used to record transactions made between divisions
13. A market-based transfer price is most likely to be used when a) the item being
14.A A joint cost is incurred to produce or purchase two or more different products at the
same time. Joint costs are usually allocated to products in proportion to the sales
values of the joint products, called value basis of allocation.
15. a. It is useful to know the amount of sales for each department as well as direct costs
for each department. This information can help assess the effectiveness of Apple’s
16. Controllable cost examples — direct labor of department, packaging supplies, office
equipment.
17. The cash conversion cycle is the number of days it takes a company to go from cash
18. Yes. Samsung can use cycle time and cycle efficiency to measure operating
performance for its manufacturing operations. For example, these measures could
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
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
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)
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
clients. To facilitate the implementation of such a code of conduct,
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
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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 general office expenses. These expenses will be assigned
as a percent of store sales.
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 22
Teamwork in Action — BTN 22-3
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
2. Having comparable responsibility accounting reports is necessary to
reliably compare performance within a company (and across different
companies). Differences in performance reports can substantially
Entrepreneurial Decision — BTN 22-4
1. Departmental income statements can be prepared for each product line
2. Departmental income statement are not always the best measure of each
department’s performance. This is because departmental income
includes allocated costs that are not within the manager’s control.
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