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Connect Managerial Accounting Chapter 9

Q1. Advertising department expenses of $71,000 and purchasing department expenses of $78,900 of Cozy Bookstore are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.

Department	Sales	Purchase Orders
Books	$201,600	1,225
Magazines	92,400	725
Newspapers	126,000	550
Total	$420,000	2,500

Complete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

Q2. Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

Indirect Expense	Cost	Allocation Base
Supervision	$83,700	Number of employees
Utilities	62,000	Square feet occupied
Insurance	28,500	Value of assets in use
Total	$174,200

Departmental data for the company’s recent reporting period follow.

Department	Employees	Square Feet	Asset Values
Materials	24	28,750	$7,200
Personnel	12	11,500	2,880
Manufacturing	48	57,500	37,440
Packaging	36	17,250	24,480
Total	120	115,000	$72,000

1. Use this information to allocate each of the three indirect expenses across the four departments.

2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $75,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $44,000.

Compute the return on investment for each Fast & Great Burgers alternative.

Using return on investment as your only criterion, recommend which of the locations to open

• Location A
• Location B

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

Investment Center	Sales	Income	Average Invested Assets
Electronics	$40,800,000	$3,060,000	$17,000,000
Sporting goods	17,680,000	2,210,000	13,000,000

1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company?
2. Assume a target income level of 11% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company?
3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted?

1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company?

2. Assume a target income level of 11% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company?

3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted?

Oakwood Company produces maple bookcases to customer order. The following information is available for the production of the bookcases.

Process time	10.0 days
Inspection time	1.3 days
Move time	3.1 days
Wait time	9.0 days

Required:
1. Compute the company’s manufacturing cycle time.
2. Compute the company’s manufacturing cycle efficiency.
3. Management believes it can reduce move time by 1.10 days and wait time by 2.50 days by adopting lean manufacturing techniques. Compute the company’s manufacturing cycle efficiency assuming the company’s predictions are correct.

1. Compute the company’s manufacturing cycle time.

2. Compute the company’s manufacturing cycle efficiency.

3. Management believes it can reduce move time by 1.10 days and wait time by 2.50 days by adopting lean manufacturing techniques. Compute the company’s manufacturing cycle efficiency assuming the company’s predictions are correct.

Connect Managerial Accounting Chapter 9 Quiz

Q1. Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period:

Office Expenses	Total	Allocation Basis
Salaries	$30,000	Number of employees
Depreciation	20,000	Cost of goods sold
Advertising	40,000	Net sales

 

Item	Drilling	Grinding	Total
Number of employees	1,000	1,500	2,500
Net sales	$325,000	$475,000	$800,000
Cost of goods sold	$75,000	$125,000	$200,000

The amount of salaries that should be allocated to Drilling for the current period is:

• $30,000
• $18,000
• $15,000
• $10,000
• $12,000

Q2. Brownley Company has two service departments and two operating (production) departments. The Payroll Department services all three of the other departments in proportion to the number of employees in each. The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each. Listed below are the operating data for the current period:

	Service Depts.		Production Depts.
	Payroll	Maintenance	Cutting	Assembly
Direct costs	$20,400	$25,500	$76,500	$105,400
No. of personnel		15	15	45
Sq. ft. of space			10,000	15,000

The total cost of operating the Maintenance Department for the current period is:

• $14,280
• $15,912
• $25,500
• $29,580
• $22,412

Q3. The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results last year:

Sales (150,000 pounds of chocolate)		$60,000
Variable expenses		37,500
Contribution margin		22,500
Fixed expenses		12,000
Profit		$10,500

Assume that the Dark Chocolate Division is currently operating at its capacity of 200,000 pounds of chocolate. Also assume again that the Peanut Butter Division wants to purchase an additional 20,000 pounds of chocolate from Dark Chocolate. Under these conditions, what amount per pound of chocolate would Dark Chocolate have to charge Peanut Butter in order to maintain its current profit?

• $0.40 per pound
• $0.08 per pound
• $0.15 per pound
• $0.25 per pound
• $0.30 per pound

Q4. Calculating return on investment for an investment center is defined by the following formula:

• Contribution margin/Ending assets.
• Gross profit/Ending assets.
• Net income/Ending assets.
• Income/Average invested assets.
• Contribution margin/Average invested assets.

Q5. In regard to joint cost allocation, the “split-off point” is:

• A physical basis method to allocate costs based on ratio of some physical characteristic.
• The difference between the actual and market value of joint costs.
• The point at which some products are sold and some remain in inventory.
• The point at which separate products can be identified.
• Not acceptable when using the value basis for allocating joint costs.

Q6. The amount by which a department’s sales exceed its direct expenses is:

• Net sales.
• Gross profit.
• Departmental profit.
• Contribution margin.
• Departmental contribution to overhead.

Q7. Two investment centers at Marshman Corporation have the following current-year income and asset data:

	Investment Center A			Investment Center B
Investment center income		$415,000			$525,000
Investment center average invested assets		$2,400,000			$1,950,000

The return on investment (ROI) for Investment Center A is:

• 578.3%
• 24.1%
• 17.3%
• 39.2%
• 19.1%

Q8. Within an organizational structure, the person most likely to be evaluated in terms of controllable costs would be:

• A payroll clerk.
• A cost center manager.
• A production line worker.
• A maintenance worker.
• A sales representative.

Q9. Part 7B costs the Midwest Division of Frackle Corporation $30 to make, of which $21 is variable. Midwest Division sells Part 7B to other companies for $47. The Northern Division of Frackle Corporation can use Part 7B in one of its products. The Midwest Division has enough idle capacity to produce all of the units of Part 7B that the Northern Division would require. What is the lowest transfer price at which the Midwest Division should be willing to sell Part 7B to the Northern Division?

• $30
• $21
• $47
• $17
• $20

Q10. Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period:

Office Expenses	Total				Allocation Basis
Salaries		$30,000			Number of employees
Depreciation		20,000			Cost of goods sold
Advertising		40,000			Net sales

 

Item	Drilling	Grinding	Total
Number of employees</td?	1,000	1,500	2,500
Net sales	$325,000	$475,000	$800,000
Cost of goods sold	$75,000	$125,000	$200,000

The amount of depreciation that should be allocated to Grinding for the current period is:

• $20,000
• $25,000
• $7,500
• $12,500
• $40,000

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