Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
1356
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)
Refrigerator department ……..
Dishwasher department ……..
Totals ………………………………..
Part 2
The Refrigerator department manager did a good job of controlling costs
and meeting the budget, spending $11,300 below budget. However, the
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
1357
Problem 22-2B (60 minutes)
Part 1
These costs are assigned to Style’s department as follows
Department
Square
Footage
Rate
Total
Part 2
Market rates are used to allocate occupancy costs for the building rent.
Occupancy Costs
Total
Costs
Value-Based
Costs
Usage–Based
Costs
Building rent ………………………
$400,000
$400,000
$25,000
Cleaning expense ………………
Value-based costs are allocated in two steps
(i) Compute market value of each floor
Floor
Square
Footage
Value per
Sq. Ft.
Total
Basement floor …………………..
Total market value ……………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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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
Basement floor …………………..
Totals …………………………..
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
These rates are applied to allocate occupancy costs to Style’s department:
Department
Square
Footage
Rate
Total
Part 3
A basement manager would prefer the allocation based on market value. This
is a reasonable and logical approach to allocation of occupancy costs. With a
1359
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 ………………………….
(3)
Depreciation of equipment ………
4,500
1,200
25,080
114,600
Allocated expenses
Rent expense ………………………….
(4)
(4)
(5)
Total allocated expenses …………
83,630
37,565
Total expenses ………………………….
Supporting Computations—coded (1) through (5) in statement above
Note 1 (Sales)
Movies
Video
Games
Compact
Discs
2019 sales ……………………………….
$600,000
$200,000
Growth rate (8% increase) ……….
Note 2 (Cost of Goods Sold)
Movies
Video
Games
Compact
Discs
2019 cost of goods sold …………..
$420,000
$154,000
2019 sales ……………………………….
$600,000
$200,000
2019 cost as % of sales ……………
2020 sales ………………………………
$648,000
$216,000
2020 cost as % of sales …………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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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 ………………..
Note 4 (Rent and Utilities)
Movies
Video
Games
Compact
Discs
2019 rent ………………………………..
$41,000
$ 9,000
One-third from video games
Percent of total ………………………
61.5%
12.0%
26.5%
One-fourth from movies to
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%
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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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
Total direct expenses …………
Allocated indirect expenses
Advertising* ……………………….
8,550
6,450
Salaries** …………………………..
16,200
10,800
*
Advertising allocation:
Sales
%
Amount
Allocated
Guitars
$370,500
57%
$15,000
$ 8,550
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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Problem 22-4B (Concluded)
**
Salaries allocation:
Employees
%
Amount
Allocated
Guitars
3
60%
$27,000
$16,200
Pianos
2
27,000
***
Office expenses allocation:
Sq. ft.
%
Amount
Allocated
Guitars
5,000
62.5%
$3,200
$2,000
Total
8,000
$3,200
Part 2
The Guitar department has both a negative contribution to overhead and a
negative departmental net income. It is not even covering its own direct
costs, and is therefore not contributing anything to overhead. Before
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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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 ………………………….
34.7
242,900
$1,440,000
Harvesting, sorting, and grading: $40,000
Grade
Sales
Value
Percent
of Total
Allocated
Cost
No. 1 ………………………….
$ 900,000
62.5%
$ 25,000
No. 2 ………………………….
34.7
No. 3 ………………………….
$1,440,000
$ 40,000
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] …………..
1364
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 ……….
No. 2: 400,000 lbs. @ $1.25 ……….
Total sales ……………………………….
Net income (loss) ……………………….
Part 3
Delivery costs include both crating and hauling costs. The Reddings are
able to identify the portion of the cost directly related to the No. 3
tomatoes, presumably because the No. 3s are going to a different
destination than the No. 1 and No. 2 tomatoes. If the No. 1s and No. 2s are
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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
Days’ payable outstanding…….……..
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
1. Average assets = $375,319 + $321,686 = $348,503 (rounded)
2
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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Comparative Analysis — AA 22-2
($ millions)
1. Profit margin = Net income/Sales
2. Investment turnover = Investment center sales
Investment center average assets
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
1. Average assets = ¥301,752,090 + 262,174,324 = ¥281,963,207
2
Target income = 0.12 x ¥281,963,207= ¥33,835,585 (rounded)
Residual income = ¥53,645,038 – ¥33,835,585 = ¥19,809,453
Wild and Shaw, Financial & Managerial Accounting, 8e 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, 8e Solutions Manual: Chapter 22
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.
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,
2. Student responses regarding the usefulness of spreadsheets will
depend on the tutorials accessed. For example, the tutorial “ROI and
ROE Performance Measure” shows how a spreadsheet can be used to
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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
2. If the indirect expenses are a large portion of total expenses, a
departmental income statement might not be the best measure of each
department’s performance. While the department’s income or loss is
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)
2. One suggested proposal is
Expense
Allocation Basis
Heat ………………………….
Square footage occupied
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 22
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