Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 24
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Chapter 24
Performance Measurement and
Responsibility Accounting
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
3. Controllable costs of a department are those that the department’s manager has the
power to control, determine or at least strongly influence. The manager does not
have the power to control, determine or influence the amounts of uncontrollable
5. Reports to higher-level managers are usually summarized in responsibility
7. Not usually; a cost center cannot usually be evaluated in terms of its profitability
8. Direct expenses of a department are expenses that are incurred for the sole benefit
of that department—there is little doubt about which department should be charged
9. a) Sales of the departments or the number of employees in each department.
b) Square feet of floor space, perhaps adjusted for its value.
10. A department’s contribution to overhead is measured by subtracting its direct
11. The individual responsible for controlling the cost needs timely reports with specific
12. A transfer price is an amount used to record transactions made between divisions
13.B A market-based transfer price is most likely to be used when a) the item being
14.C A joint cost is incurred to produce or purchase two or more different products at the
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
16. Controllable cost examples — labor of department, packaging supplies, office
17. Cycle time is the time it takes a company to produce a product or service. Its
18. Value-added time provides value to a product or service from a customer’s
perspective. Non-value added time provides no value to the customer. Value-added
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19. Cycle efficiency is the ratio of value-added time divided by total cycle time. The
closer cycle efficiency is to 1, the more of a company’s time is spent on value-added
20. Yes. Samsung can use cycle time and cycle efficiency to measure operating
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QUICK STUDIES
Quick Study 24-1 (10 minutes)
Quick Study 24-2 (10 minutes)
Possible allocation bases for these indirect expenses and service
department expenses include:
1. Proportion of total processing time for each factory department; or
3. Proportion of total time in each department for maintenance; or
Quick Study 24-3 (5 minutes)
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Quick Study 24-4 (10 minutes)
Controllable costs for the service department would include:
Quick Study 24-5 (10 minutes)
% of
Advertising to
Allocated
Sales
Total
allocate
amount
400,000
Quick Study 24-6 (10 minutes)
% of
Admin. Exp.
Allocated
Employees
Total
to allocate
amount
Quick Study 24-7 (10 minutes)
% of
Maint. Exp.
Allocated
Sq. Feet
Total
to allocate
amount
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Quick Study 24-8 (15 minutes)
The first step is to allocate total rent expense between the two floors.
Amount
Allocated
% of Total
Cost
$ 84,500
$130,000
The second step is to allocate these portions of total rent expense across
the departments occupying the two floors
First Floor
Sq. Feet
% of Total
Cost
Jewelry Dept. ……………………..
1,440
30%
$25,350
Totals …………………………..
4,800
$84,500
Second Floor
Sq. Feet
% of Total
Cost
Housewares Dept. ………………
2,016
42%
$19,110
1,824
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Quick Study 24-9 (15 minutes)
Departmental contribution to overhead
Dept. A: $18,815 – $ 3,660 = $15,155
Quick Study 24-10 (10 minutes)
Income
Average Assets
Return on
Investment
$4,500,000
$20,000,000
22.5%
12.0%
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Quick Study 24-11 (10 minutes)
Cameras &
camcorders
Phones &
communication
Computers &
accessories
Net income …………………………
$4,500,000
$1,500,000
$ 800,000
Quick Study 24-12 (15 minutes)
Investment center A:
Return on investment = Net income / Average invested assets
Investment turnover = Sales / Average invested assets
Investment center B:
Return on investment = Profit margin x Investment turnover
Quick Study 24-12 (continued)
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 24
Investment turnover = Sales / Average invested assets
Quick Study 24-13 (10 minutes)
Quick Study 24-14 (5 minutes)
4. I 8. C
Quick Study 24-15 (10 minutes)
Process Perspective Actual Target Trend
Quick Study 24-16 (10 minutes)
a.
Process time ……………………………………………………………………
15.0 minutes
Move time ………………………………………………………………………..
Wait time …………………………………………………………………………
36.6 minutes
Manufacturing cycle time …………………………………………………
60.0 minutes
Manufacturing cycle efficiency (15.0 min./ 60.0 min.) ………..
Quick Study 24-17B (10 minutes)
Without excess capacity, a market-based transfer price of $450 per
Quick Study 24-18B (10 minutes)
If the windshield division has excess capacity, a range of acceptable
Quick Study 24-19C (15 minutes)
Total joint cost = $325,000 + $50,000 = $375,000
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Quick Study 24-20 (5 minutes)
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EXERCISES
Exercise 24-1 (15 minutes)
Responsibility Accounting Performance Report
Dept. Manager, Snowmobile Department
For the Year
Budgeted
Actual
Over (Under)
Amount
Amount
Budget
Controllable Costs
Exercise 24-2 (15 minutes)
Responsibility Accounting Performance Report
Dept. Manager, ATV Department
For the Year
Budgeted
Actual
Over (Under)
Amount
Amount
Budget
Controllable Costs
Raw materials …………………………..
$27,500
$28,820
$1,320
Supplies used …………………………..
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Exercise 24-3 (25 minutes)
COZY BOOKSTORE
Departmental Expense Allocation Spreadsheet
For Period Ended _______
Allocation of Expenses to Departments .
Alloca-
tion Base
Exp.
Account
Balance
Adver-
tising
Dept.
Purch-
asing
Dept.
Books
Dept.
Maga-
zines
Dept.
News-
papers
Dept.
Computations for allocations of service dept. costs to operating departments
Advertising: $24,000
Sales
% of Total
Cost
Books Dept. ………………………….
$495,000
55%
$13,200
Magazines Dept. ……………………
22
Newspapers Dept. …………………
Books Dept. ………………………….
$14,620
Magazines Dept. ……………………
Newspapers Dept. …………………
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Exercise 24-4 (20 minutes)
Allocation of annual wages between the two departments
Hours Worked*
% of Total
Cost
*Computation of hours worked in the two selling departments
Jewelry department
57 hours
Cosmetics department
Total hours ……………………………………………….
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Exercise 24-5 (25 minutes)
1. Allocation of Indirect Expenses to Four Operating Departments
Supervision expenses
Department
Employees
% of Total
Cost
Utilities expenses
Department
Square Feet
% of Total
Cost
Materials …………………………..
25,000
25%
$12,500
Personnel …………………………..
Manufacturing ……………………
55,000
Packaging ………………………….
Totals …………………………..
100,000
$50,000
Insurance expenses
Department
Assets Value
% of Total
Cost
Materials …………………………..
$ 6,000
10%
$ 2,250
Personnel …………………………..
Manufacturing ……………………
37,800
Packaging ………………………….
Totals …………………………..
$60,000
$22,500
2. Report of Indirect Expenses Assigned to Four Operating Departments
Supervision
Utilities
Insurance
Total
Materials …………………………..
18%
$14,850
Personnel …………………………..
Manufacturing ……………………
Packaging ………………………….
Totals …………………………..
$82,500
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Exercise 24-6 (20 minutes)
MARATHON RUNNING SHOP
Departmental Expense Allocation Spreadsheet
For Year Ended December 31, 2017
Allocation of Expenses to Departments .
Alloca-
tion
Base
Expense
Account
Balance
Adver-
tising
Dept.
Admini-
strative
Dept.
Shoes
Dept.
Clothing
Dept.
Direct expenses …………
$161,000
$18,000
$25,000
$103,000
$15,000
Total dept. exp. ………….
225,000
135,640
Advertising Dept.……….
$225,000
$177,472
$47,528
Supporting expense allocation calculations
Utilities expense: $64,000
Square Feet
% of Total
Cost
Advertising …………
1,120
8%
$ 5,120
Administrative …….
1,400
Shoes …………………
7,140
Clothing ……………..
Advertising expense: $23,120
Ads Placed
% of Total
Cost
Shoes …………………
90
75%
$17,340
Clothing ……………..
Administrative expense: $31,400
Sales
% of Total
Cost
Shoes …………………
$24,492
(1)
WHOLESALE GUITARS
Departmental Contribution Statements
For Year Ended December 31, 2017
Acoustic
Electric
Dept.
Dept.
Combined
Sales ………………………………….
$112,500
$105,500
$218,000
Departmental contributions to
(2) Based on departmental contribution to overhead, the electric guitar
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Exercise 24-8 (25 minutes)
1.
JANSEN COMPANY
Departmental Income Statement—Ski Department
For Year Ended December 31, 2017
Ski Dept.
Sales ………………………………………
$605,000
2.
JANSEN COMPANY
Departmental Contribution to Overhead—Ski Department
For Year Ended December 31, 2017
Ski Dept.
Sales ………………………………………
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Exercise 24-9 (15 minutes)
1.
Location
Net income
Average assets
Return on
investment
2. The recommendation is to pursue Location B because its return on
investment (assets) is 18%, compared to 16% at Location A. Moreover,
Exercise 24-10 (20 minutes)
(1)
Income
Average assets
Return on
investment
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Exercise 24-10 (continued)
(2)
Investment Center
Electronics
Sporting goods
Net income ………………..
$2,880,000
$2,040,000
Exercise 24-11 (15 minutes)
Income
Sales
Profit margin
Sales
Average assets
Investment
turnover