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Accounting 23rd Edition Carl S. Warren - Solutions
=+Estimated finished goods inventory, August 1, 2010 200 $6,000 Desired finished goods inventory, August 31, 2010 100 3,000 Materials Inventory:Cream Base Oils Bottles(ozs.) (ozs.) (bottles)Estimated materials inventory, August 1, 2010 400 240 500 Desired materials inventory, August 31, 2010 600
=+There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.Instructions 5. Prepare the August production budget.6.
=+August were as follows:Actual Direct Materials Actual Direct Materials Price per Case Quantity per Case Cream base $1.05 (for 72 ozs.) 76 ozs.Natural oils 6.25 (for 24 ozs.) 25 ozs.Bottle (8-oz.) 4.65 (for 12 bottles) 12.4 bottles Actual Direct Labor Actual Direct Labor Rate Time per Case Mixing
=+The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed
=+10. Determine and interpret the direct materials price and quantity variances for the three materials.
=+11. Determine and interpret the direct labor rate and time variances for the two departments.
=+12. Determine and interpret the factory overhead controllable variance.
=+13. Determine and interpret the factory overhead volume variance.
=+14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,300 cases of production used in the budgets for parts (6) and (7)?Chapter 23 Performance Evaluation Using
=+operation that could be evaluated with standards. Michael used time and motion studies to identify an ideal standard of 36 claims processed per hour. The Claims Processing Department manager, Kimberly Mann, has rejected this standard and has argued that the standard should be 30 claims processed
=+As you know, Kimberly and I are scheduled to meet with you to discuss our disagreement with respect to the appropriate standards for the Claims Processing Department.I have conducted time and motion studies and have determined that the ideal standard is 36 claims processed per hour. Kimberly
=+Discuss the ethical and professional issues in this situation.
=+SA 23-1 Ethics and professional conduct in business using nonmanufacturing standards The senior management of Calvin Company has proposed the following three performance measures for the company:
=+1. Net income as a percent of stockholders’ equity 2. Revenue growth
=+3. Employee satisfaction Management believes these three measures combine both financial and nonfinancial measures and are thus superior to using just financial measures.What advice would you give Calvin Company for improving its performance measurement system?
=+SA 23-2 Nonfinancial performance measures You have been asked to investigate some cost problems in the Assembly Department of MyLife Electronics Co., a consumer electronics company. To begin your investigation, you have obtained the following budget performance report for the department for the
=+SA 23-3 Variance interpretation 1084 Chapter 23 Performance Evaluation Using Variances from Standard Costs MyLife Electronics Co.—Fabrication Department Quarterly Budget Performance Report Standard Actual Quantity at Quantity at Quantity Standard Rates Standard Rates Variances Direct labor
=+Q: What explains the poor performance in your department?A: Listen, you’ve got to understand what it’s been like in this department recently. Lately, it seems no matter how hard we try, we can’t seem to make the standards. I’m not sure what is going on, but we’ve been having a lot of
=+Q: What kind of problems?A: Well, for instance, all this quarter we’ve been requisitioning purchased parts from the material storeroom, and the parts just didn’t fit together very well. I’m not sure what is going on, but during most of this quarter we’ve had to scrap and sort purchased
=+Q: Go on.A: All this quarter, the work that we’ve been receiving from the Fabrication Department has been shoddy. I mean, maybe around 20% of the stuff that comes in from Fabrication just can’t be assembled. The fabrication is all wrong. As a result, we’ve had to scrap and rework
=+a lot of the stuff. Naturally, this has just shot our quantity variances.Interpret the variance reports in light of the comments by the Assembly Department supervisor.
=+Sound Sensation Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the period:Budgeted Variable Factory Overhead at Controllable Actual Actual Production Variance Supplies $28,000 $26,520 $1,480 U Power and
=+The plant manager is not pleased with the $8,202 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred:Plant Manager: I just received this factory report for the latest month of operation. I’m not
=+Plant Manager: What’s the problem? Well, everything. Look at the variance. It’s too large.If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well, I don’t
=+If you were in the controller’s position, how would you respond to the plant manager?
=+SA 23-4 Variance interpretation Chapter 23 Performance Evaluation Using Variances from Standard Costs 1085 Municipal governments are discovering that you can control only what you measure.As a result, many municipal governments are introducing nonfinancial performance measures to help improve
=+3. If management’s minimum acceptable rate of return is 10%, determine the residual income for each division.
=+1. When the manager has the responsibility and authority to make decisions that affect costs and revenues but no responsibility for or authority over assets invested in the department, the department is called a(n):A. cost center. C. investment center.B. profit center. D. service department.
=+3. Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of$30,000, and invested assets of $600,000. What is the rate of return on investment for Division A?A. 20% C. 33%B. 25% D. 40%
=+4. Division L of Liddy Co. has a rate of return on investment of 24% and an investment turnover of 1.6. What is the profit margin?A. 6% C. 24%B. 15% D. 38%
=+1. Differentiate between a cost center and a profit center.
=+11. Why would a firm use a balanced scorecard in evaluating divisional performance?
=+12. What is the objective of transfer pricing?
=+13. When is the negotiated price approach preferred over the market price approach in setting transfer prices?
=+14. Why would standard cost be a more appropriate transfer cost between cost centers than actual cost?
=+PE 24-1A Budgetary performance for cost center obj. 2 EE 24-1 p. 1091 Magic Motion Company’s costs were over budget by $63,000. The company is divided into Southwest and Northeast regions. The Southwest Region’s costs were under budget by $17,000. Determine the amount that the Northeast
=+PE 24-1B Budgetary performance for cost center obj. 2 EE 24-1 p. 1091 The centralized employee Travel Department of Teapot Dome Company has expenses of $180,000. The department has serviced a total of 2,000 travel reservations for the period.The Norsk Division has made 750 reservations during the
=+PE 24-2A Service department charges obj. 3 EE 24-2 p. 1094 The centralized Help Desk of Hayman Company has expenses of $140,000. The department has provided a total of 5,000 hours of service for the period. Computer Division has used 2,000 hours of Help Desk service during the period, and
=+PE 24-2B Service department charges obj. 3
=+EE 24-2 p. 1094 Using the data for Teapot Dome Company from Practice Exercise 24-2A along with the data provided below, determine the divisional income from operations for the Norsk and West divisions.Norsk Division West Division Sales $700,000 $770,000 Cost of goods sold 365,000 462,000 Selling
=+PE 24-3A Income from operations for profit center obj. 3
=+EE 24-3 p. 1094 Using the data for the Hayman Company from Practice Exercise 24-2B along with the data provided below, determine the divisional income from operations for the Computer Division and the Peripheral Division.Computer Division Peripheral Division Sales $1,200,000 $1,305,000 Cost of
=+PE 24-3B Income from operations for profit center obj. 3 EE 24-3 p. 1094 1112 Chapter 24 Performance Evaluation for Decentralized Operations Mathews Company has income from operations of $50,000, invested assets of $200,000, and sales of $500,000. Use the DuPont formula to compute the rate of
=+PE 24-4A Profit margin, investment turnover, and ROI obj. 4 EE 24-4 p. 1099 Wakelin Company has income from operations of $20,125 invested assets of $87,500 and sales of $175,000. Use the DuPont formula to compute the rate of return on investment and show (a) the profit margin, (b) the
=+PE 24-4B Profit margin, investment turnover, and ROI obj. 4 EE 24-4 p. 1099 The Consumer Division of Woods Company has income from operations of $60,000 and assets of $440,000. The minimum acceptable rate of return on assets is 12%. What is the residual income for the division?
=+PE 24-5A Residual income obj. 4 EE 24-5 p. 1101 The Commercial Division of LaSalle Company has income from operations of $135,000 and assets of $650,000. The minimum acceptable rate of return on assets is 10%. What is the residual income for the division?
=+PE 24-5B Residual income obj. 4 EE 24-5 p. 1101 The materials used by the Laramie Division of Barron Company are currently purchased from outside suppliers at $40 per unit. These same materials are produced by Barron’s Astoria Division. The Astoria Division can produce the materials needed by
=+PE 24-6A Transfer pricing obj. 5 EE 24-6 p. 1106 The materials used by the Kenosha Division of Ehrlich Company are currently purchased from outside suppliers at $75 per unit. These same materials are produced by the High Point Division. The High Point Division can produce the materials needed by
=+PE 24-6B Transfer pricing obj. 5 EE 24-6 p. 1106 Exercises Partially completed budget performance reports for Iliad Company, a manufacturer of air conditioners, are provided below.Iliad Company Budget Performance Report—Vice President, Production For the Month Ended April 30, 2010 Plant Budget
=+EX 24-1 Budget performance reports for cost centers obj. 2✔a. (c) $2,640 Chapter 24 Performance Evaluation for Decentralized Operations 1113 Iliad Company Budget Peformance Report—Manager, South Region Plant For the Month Ended April 30, 2010 Department Budget Actual Over Budget Under Budget
=+Budget Performance Report—Supervisor, Chip Fabrication For the Month Ended April 30, 2010 Department Budget Actual Over Budget Under Budget Factory wages $ 24,640 $ 26,400 $1,760 Materials 69,600 69,120 $480 Power and light 3,840 4,560 720 Maintenance 6,720 7,360 640 ________ ________
=+a. Complete the budget performance reports by determining the correct amounts for the lettered spaces.
=+b. Compose a memo to Dana Johnson, vice president of production for Iliad Company, explaining the performance of the production division for April.The following data were summarized from the accounting records for DeSalvo Construction Company for the year ended June 30, 2010:Cost of goods sold:
=+Prepare divisional income statements for DeSalvo Construction Company.
=+EX 24-2 Divisional income statements obj. 3✔ Residential Division income from operations, $78,900 For each of the following service departments, identify an activity base that could be used for charging the expense to the profit center.a. Central purchasingd. Duplication servicesb. Legale.
=+EX 24-3 Service department charges and activity bases obj. 3 For each of the following service departments, select the activity base listed that is most appropriate for charging service expenses to responsible units.Service Department Activity Basea. Central Purchasing 1. Number of travel
=+c. Conferences 3. Number of sales invoicesd. Telecommunications 4. Number of purchase requisitionse. Accounts Receivable 5. Number of telephone linesf. Employee Travel 6. Number of employees trained
=+g. Payroll Accounting 7. Number of computers h. Computer Support 8. Number of conference attendees
=+EX 24-4 Activity bases for service department charges obj. 3 In divisional income statements prepared for Mills Construction Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks, and the Purchasing Department costs are charged back
=+EX 24-5 Service department charges obj. 3✔b. Commercial payroll, $12,468 1114 Chapter 24 Performance Evaluation for Decentralized Operations data for Residential, Commercial, and Government Contract Divisions were obtained from corporate records:Government Residential Commercial Contract Sales
=+b. Using the activity base information in (a), determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services.
=+c. Why does the Residential Division have a larger service department charge than the other two divisions, even though its sales are lower?
=+Harris Corporation, a manufacturer of electronics and communications systems, uses a service department charge system to charge profit centers with Computing and Communications Services (CCS) service department costs. The following table identifies an abbreviated list of service categories and
=+CCS Service Assumed Activity Category Activity Base Assumed Cost Base Quantity Help desk Number of calls $ 88,400 2,600 Network center Number of devices monitored 609,375 9,750 Electronic mail Number of user accounts 67,080 6,450 Local voice support Number of phone extensions 152,720 9,200
=+One of the profit centers for Harris Corporation is the Communication Systems(COMM) sector. Assume the following information for the COMM sector:• The sector has 3,000 employees, of whom 40% are office employees.• All the office employees have a phone,and 75% of them have a computer on the
=+• The average number of help desk calls for April was 1.0 call per individual with a computer.
=+• There are 250 additional printers, servers, and peripherals on the network beyond the personal computers.
=+a. Determine the service charge rate for the four CCS service categories for April.
=+b. Determine the charges to the COMM sector for the four CCS service categories for April.
=+EX 24-6 Service department charges and activity bases obj. 3✔b. Help desk,$30,600 Encounter Sporting Goods Company has two divisions, Wholesale and Retail, and two corporate service departments, Tech Support and Accounts Payable. The corporate expenses for the year ended December 31, 2010, are
=+EX 24-7 Divisional income statements with service department charges obj. 3✔ Retail income from operations,$1,386,134 Chapter 24 Performance Evaluation for Decentralized Operations 1115 Tech Support Accounts Payable Wholesale Division 300 computers 7,060 checks Retail Division 200 12,940 ____
=+Wholesale Retail Revenues $6,720,000 $5,712,000 Cost of goods sold 3,528,000 2,688,000 Operating expenses 1,260,000 1,176,000 Prepare the divisional income statements for the two divisions.Trans-Continental Airlines, Inc., has two divisions organized as profit centers, the Passenger Division and
=+Trans-Continental Airlines, Inc.Divisional Income Statements For the Year Ended June 30, 2010 Passenger Division Cargo Division Revenues $1,400,000 $1,400,000 Operating expenses 950,000 1,200,000 __________ __________ Income from operations before service department charges $ 450,000 $ 200,000
=+Flight scheduling 75,000 75,000 Reservations 105,000 260,000 105,000 260,000 ________ __________ _________ __________ Income from operations $ 190,000 $ (60,000) __________ __________ ___________ ___________ The service department charge rate for the service department costs was based on
=+Passenger Cargo Division Division Total Number of personnel trained 200 50 250 Number of flights 250 350 600 Number of reservations requested 14,000 0 14,000a. Does the income from operations for the two divisions accurately measure performance?
=+b. Correct the divisional income statements, using the activity bases provided above in revising the service department charges.
=+EX 24-8 Corrections to service department charges obj. 3✔b. Income from operations, Cargo Division,$80,500 X-Out Sporting Goods Co. operates two divisions—the Action Sports Division and the Team Sports Division. The following income and expense accounts were provided from the trial balance as
=+EX 24-9 Profit center responsibility reporting objs. 3, 5✔ Income from operations, Action Sports Division,$571,400 Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 642,000 Transportation Expense . . . . . . . . . . . . .
=+b. Transportation expense—charged back to divisions at a charge rate of $12.40 per bill of lading: Action Sports Division, 12,000 bills of lading; Team Sports Division, 13,400 bills of lading.
=+c. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $7.50 per invoice: Action Sports Division, 12,400 sales invoices; Team Sports Division, 14,500 sales invoices.
=+d. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Action Sports Division, 120,000 square feet; Team Sports Division, 80,000 square feet.
=+Prepare a divisional income statement with two column headings: Action Sports Division and Team Sports Division. Provide supporting schedules for determining service department charges.
=+The income from operations and the amount of invested assets in each division of Devon Industries are as follows:Income from Invested Operations Assets Sporting Goods Division $80,000 $400,000 Health Care Division 41,600 260,000 Commercial Division 70,400 320,000a. Compute the rate of return on
=+EX 24-10 Rate of return on investment obj. 4✔a. Health Care Division, 16%Based on the data in Exercise 24-10, assume that management has established a 10%minimum acceptable rate of return for invested assets.a. Determine the residual income for each division.
=+b. Which division has the most residual income?
=+EX 24-11 Residual income obj. 4✔a. Sporting Goods Division, $40,000 One item is omitted from each of the following computations of the rate of return on investment:Rate of Return on Investment = Profit Margin Investment Turnover 22% = 10% (a)(b) = 16% 0.75 18% = (c) 1.50 14% = 20%
=+Determine the missing items, identifying each by the appropriate letter.
=+EX 24-12 Determining missing items in rate of return computation obj. 4✔d. 0.70 The condensed income statement for the International Division of King Industries Inc.is as follows (assuming no service department charges):Sales $1,200,000 Cost of goods sold 600,000 __________ Gross profit $
=+EX 24-13 Profit margin, investment turnover, and rate of return on investment obj. 4✔a. ROI, 15%Chapter 24 Performance Evaluation for Decentralized Operations 1117a. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return
=+b. If expenses could be reduced by $60,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the International Division?The Walt Disney Company has four major sectors, described as follows:
=+• Media Networks: The ABC television and radio network, Disney channel, ESPN, A&E, E!, and Disney.com.
=+• Parks and Resorts: Walt Disney World Resort, Disneyland, Disney Cruise Line, and other resort properties.
=+• Studio Entertainment: Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures, Miramax Films, and Buena Vista Theatrical Productions.
=+• Consumer Products: Character merchandising, Disney stores, books, and magazines.Disney recently reported sector income from operations, revenue, and invested assets(in millions) as follows: Income from Invested Operations Revenue Assets Media Networks $4,285 $15,046 $27,692 Parks and Resorts
=+a. Use the DuPont formula to determine the rate of return on investment for the four Disney sectors. Round whole percents to one decimal place and investment turnover to two decimal places.
=+b. How do the four sectors differ in their profit margin, investment turnover, and return on investment?
=+EX 24-14 Rate of return on investment obj. 4✔a. Media Networks ROI, 15.4%Data for Schmidt Company is presented in the following table of rates of return on investment and residual incomes:Minimum Income Rate of Minimum Acceptable Invested from Return on Rate of Income from Residual Assets
=+EX 24-15 Determining missing items in rate of return and residual income computations obj. 4✔c. $92,400 Data for the North, South, East and West divisions of McGonigel Company are as follows:Income from Rate of Return Investment Sales Operations Invested Assets on Investment Profit Margin
=+b. Determine the residual income for each division, assuming that the minimum acceptable rate of return established by management is 10%.
=+c. Which division is the most profitable in terms of (1) return on investment and(2) residual income?
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