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1.
Budget Actual Over Budget Under Budget
Customer service salaries
Insurance and property taxes
Distribution salaries
Marketing salaries
Engineer salaries
Warehouse wages
Equipment depreciation
Total
2.
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Problem 23(8)-1A
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Section:
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[Key essay answer here]
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VALOTIC TECH, INC.
Budget Performance Report – Director, Consumer Products Division
For the Month Ended January 31, 2016
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1.
Budget Actual Over Budget Under Budget
Customer service salaries 546,840$ 602,350$ 55,510$ –$
Insurance and property taxes 114,660 110,240 – 4,420
2.
The customer service and marketing salaries are significantly over budget. The director should investigate the
cause of these results. One possibility is that the company is having an increase in sales, requiring greater
Problem 23(8)-1A
Name:
Solution
Section:
ON
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For the Month Ended January 31, 2016
VALOTIC TECH, INC.
Budget Performance Report – Director, Consumer Products Division
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1.
Budget Actual Over Budget Under Budget
Sales salaries
System administration salaries
Customer service salaries
Billing salaries
Maintenance
Depreciation of plant and equip.
Insurance and property taxes
Total
2.
Score:
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Problem 23(8)-1B
Name:
Section:
0%
[Key essay answer here]
[Key code here]
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ADELSON INC.
Budget Performance Report⎯Manager, Eastern District
For the Month Ended December 31, 2016
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1.
Budget Actual Over Budget Under Budget
Sales salaries 819,840$ 818,880$ –$ 960$
System administration salaries 448,152 447,720 – 432
Customer service salaries 152,600 183,120 30,520
2.
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For the Month Ended December 31, 2016
ADELSON INC.
Budget Performance Report⎯Manager, Eastern District
The customer service salaries exceed the budget by over 20% of budget ($30,520/$152,600). The manager
should request additional detailed information about the customer service department. There are several
possible reasons for the budget variance. The manager should determine if the cause is related to an increase
Problem 23(8)-1B
Name:
Solution
Section:
ON
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1.
East West Central
Revenues
Operating expenses
Income from operations before service dept. charges
Less service department charges:
Customer support
Legal
Total
Income from operations
Supporting schedules:
East West Central Total
Number of customer contacts
Number of hours billed
Service Cost Output = Rate
Customer contact rate per contact
Legal billing rate per hour
2.
Profit margin: Income from Profit
Operations Revenues = Margin
East Division
West Division
Central Division
Based on profit margin, the
Division has the highest performance.
3.
Score:
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Problem 23(8)-2A
Name:
Section:
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[Key essay answer here]
[Key code here]
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TRAXONIA RAILROAD INC.
Divisional Income Statements
For the Quarter Ended December 31, 2016
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1.
East West Central
Revenues 870,000$ 1,032,000$ 1,872,000$
Operating expenses 563,300 618,240 1,166,940
Income from operations before service dept. charges 306,700$ 413,760$ 705,060$
Less service department charges:
Customer support 100,000$ 120,000$ 180,000$
Supporting schedules:
East West Central Total
Number of customer contacts 5,000 6,000 9,000 20,000
Number of hours billed 1,350 2,160 1,890 5,400
2.
Profit margin: Income from Profit
Operations Revenues = Margin
East Division $139,200 $870,000 16%
West Division $185,760 $1,032,000 18%
3.
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For the Quarter Ended December 31, 2016
TRAXONIA RAILROAD INC.
Divisional Income Statements
To: CEO
The method used to evaluate the performance of the divisions should be reevaluated. The present method
identifies the amount of income from operations per dollar of earned revenue. However, this company
Problem 23(8)-2A
Name:
Solution
Section:
ON
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important consideration in evaluating divisional performance. Therefore, a better divisional performance
measure would be either (a) rate of return on investment (income from operations divided by divisional
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1.
North South West
Revenues
Operating expenses
Income from operations before service dept. charges
Less service department charges:
Dispatching
Equipment management
Total
Income from operations
Supporting schedules:
North South West Total
Number of scheduled trains
Number of railroad cars in inventory
Service Cost Output = Rate
Dispatching rate per scheduled train
Equipment management rate per railroad car
2.
Profit margin: Income from Profit
Operations Revenues = Margin
North Region
South Region
West Region
Based on profit margin, the Region has the highest performance.
3.
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THOMAS RAILROAD COMPANY
Divisional Income Statements
For the Quarter Ended December 31, 2016
Score:
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Instructions
Problem 23(8)-2B
Name:
Section:
0%
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1.
North South West
Revenues 3,780,000$ 5,673,000$ 5,130,000$
Operating expenses 2,678,500 4,494,890 3,770,050
Supporting schedules:
North South West Total
Number of scheduled trains 650 1,105 845 2,600
Number of railroad cars in inventory 6,000 8,400 9,600 24,000
2.
Profit margin: Income from Profit
Operations Revenues = Margin
North Region $756,000 $3,780,000 20%
South Region $680,760 $5,673,000 12%
3.
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For the Quarter Ended December 31, 2016
THOMAS RAILROAD COMPANY
Divisional Income Statements
To: CEO
The method used to evaluate the performance of the regions should be re-evaluated. The present method
identifies the amount of income from operations per dollar of earned revenue. However, a railroad company
requires a significant investment in fixed assets, such as track, engines, and railcars. In addition, the amount of
Problem 23(8)-2B
Name:
Solution
Section:
ON
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however, may have widely distributed assets over sparsely populated areas that run a small amount of traffic
over those assets. The present measure fails to incorporate these differences in asset utilization into the
measure. Naturally, the amount of assets used by a region in earning a return is a very important consideration
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elements in the equations. The essay answer will not be graded.
1.
Snack Retail
Cereal Cake Bakeries
Division Division Division
Sales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
2.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Cereal Division:
Snack Cake Division:
Retail Bakeries Division:
3.
=
Income from Operations
Sales
Invested Assets
ROI
=
x
=
0%
[Key essay answer here]
[Key code here]
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THE CRUNCHY GRANOLA COMPANY
Divisional Income Statements
For the Year Ended June 30, 2016
Rate of Return (ROI) on Investment
x
=
Score:
Key Code:
Instructions
Problem 23(8)-3A
Name:
Section:
x
ROI
=
x
=
ROI
=
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elements in the equations. The essay answer will not be graded.
1.
Snack Retail
Cereal Cake Bakeries
Division Division Division
x
10.5%
ROI
=
=
=
=
x
12.0%
ROI
Sales 25,000,000$ 8,000,000$ 9,750,000$
Cost of goods sold 16,670,000 5,575,000 6,795,000
2.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Cereal Division:
$1,000,000 $25,000,000
25,000,000$ $10,000,000
3.
Score:
Instructions
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ROI
=
x
=
Rate of Return (ROI) on Investment
Income from Operations
Per dollar of invested assets, the Snack Cake Division is the most profitable of the three
divisions. Assuming that the rates of return on investments do not change in the future, an
Problem 23(8)-3A
Name:
Solution
Section:
ON
Sales
Invested Assets
=
x
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For the Year Ended June 30, 2016
THE CRUNCHY GRANOLA COMPANY
Divisional Income Statements
10.0%
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elements in the equations. The essay answer will not be graded.
1.
Mutual Electronic Investment
Fund Brokerage Banking
Division Division Division
Fee revenue
Operating expenses
Income from operations
2.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Mutual Fund Division:
Electronic Brokerage Division:
Investment Banking Division:
3.
=
Income from Operations
Sales
Invested Assets
ROI
=
x
=
0%
[Key essay answer here]
[Key code here]
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E.F. LYNCH COMPANY
Divisional Income Statements
For the Year Ended June 30, 2016
Rate of Return (ROI) on Investment
x
=
Score:
Key Code:
Instructions
Problem 23(8)-3B
Name:
Section:
x
ROI
=
x
=
ROI
=
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elements in the equations. The essay answer will not be graded.
1.
Mutual Electronic Investment
Fund Brokerage Banking
Division Division Division
=
x
21.6%
ROI
=
=
x
24.0%
ROI
=
Fee revenue 4,140,000$ 3,360,000$ 4,560,000$
Operating expenses 2,980,800 3,091,200 3,739,200
2.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Mutual Fund Division:
$1,159,200 $4,140,000
4,140,000$ $5,175,000
3.
For the Year Ended June 30, 2016
E.F. LYNCH COMPANY
Divisional Income Statements
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Problem 23(8)-3B
Name:
Solution
Section:
ON
ROI
=
x
=
Per dollar of invested assets, the Electronic Brokerage Division is the most profitable of the
three divisions. Assuming that the rates of return on investments do not change in the future, an
22.4%
Rate of Return (ROI) on Investment
Income from Operations
Sales
Invested Assets
=
x
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elements in the equations.
1.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Commercial Division:
2.
Proposal 1 Proposal 2 Proposal 3
Sales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Invested assets
3.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Proposal 1:
Proposal 2:
Proposal 3:
=
x
=
x
=
x
Score:
Key Code:
Instructions
For the Year Ended December 31, 2016
0%
MAXELL MANUFACTURING INC.⎯COMMERICAL DIVISION
Estimated Income Statements
[Key code here]
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Invested Assets
x
x
Sales
Problem 23(8)-4A
Name:
Section:
Invested Assets
ROI
=
x
=
Rate of Return (ROI) on Investment
=
Income from Operations
=
ROI
=
Rate of Return (ROI) on Investment
=
Income from Operations
ROI
=
ROI
Sales
4.
meet(s) the required 21% rate of return on investment.
5.
Rate of return on investment (ROI) = Profit margin x Required investment turnover
= x Required investment turnover
Required investment turnover =
Current investment turnover =
Increase in investment turnover =
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elements in the equations.
1.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Commercial Division:
$420,000 $3,500,000
$3,500,000 $2,500,000
2.
Proposal 1 Proposal 2 Proposal 3
Sales 3,500,000$ 3,500,000$ 2,905,000$
Cost of goods sold 2,585,000 1,920,000 2,073,300
Gross profit 915,000$ 1,580,000$ 831,700$
3.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Proposal 1:
$315,000 $3,500,000
$3,500,000 $2,187,500
Sales
Invested Assets
=
x
16.8%
14.4%
Invested Assets
ROI
=
x
=
For the Year Ended December 31, 2016
MAXELL MANUFACTURING INC.⎯COMMERICAL DIVISION
Estimated Income Statements
Rate of Return (ROI) on Investment
Income from Operations
=
Rate of Return (ROI) on Investment
=
Income from Operations
x
Sales
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Problem 23(8)-4A
Name:
Solution
Section:
=
x
ROI
ON
4.
meet(s) the required 21% rate of return on investment.
5.
Rate of return on investment (ROI) = Profit margin x Required investment turnover
21% =12% x Required investment turnover
Proposals 2 & 3
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elements in the equations.
1.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Electronics Division:
2.
Proposal 1 Proposal 2 Proposal 3
Sales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Invested assets
3.
Rate of Return (ROI) on Investment = Profit Margin x Investment Turnover
Sales
Proposal 1:
Proposal 2:
Proposal 3:
ROI
=
Rate of Return (ROI) on Investment
=
ROI
=
ROI
Sales
Invested Assets
=
Invested Assets
ROI
=
x
=
Rate of Return (ROI) on Investment
=
Income from Operations
Score:
Key Code:
Instructions
For the Year Ended December 31, 2016
0%
GIHBLI INDUSTRIES INC.⎯ELECTRONICS DIVISION
Estimated Income Statements
Problem 23(8)-4B
Name:
Section:
[Key code here]
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=
x
=
x
x
Sales
Income from Operations
x
=
x
4.
meet(s) the required 20% rate of return on investment.
5.
Rate of return on investment (ROI) = Profit margin x Required investment turnover
= x Required investment turnover
Required investment turnover =
Current investment turnover =
Increase in investment turnover =