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Connect Managerial Accounting Homework Chapter 9

Q1. Arctica manufactures snowmobiles and ATVs. These products are made in different departments, and each department has its own manager. Each responsibility performance report only includes those costs that the particular department manager can control: raw materials, wages, supplies used, and equipment depreciation.

	Budget													Actual
	Snowmobile					ATV				Combined				Snowmobile					ATV			Combined
Raw materials		$	20,210			$	28,200			$	48,410				$	20,120			$	29,590		$	49,710
Employee wages			11,100				21,200				32,300					11,430				22,010			33,440
Dept. manager salary			5,000				5,900				10,900					5,100				5,100			10,200
Supplies used			4,070				970				5,040					3,870				1,020			4,890
Depreciation-Equip.			6,700				13,200				19,900					6,700				13,200			19,900
Utilities			430				610				1,040					400				570			970
Rent			6,400				7,000				13,400					6,000				7,000			13,000
Totals		$	53,910			$	77,080			$	130,990				$	53,620			$	78,490		$	132,110

Prepare a responsibility accounting report for the ATV department. (Under budget amounts should be indicated by a minus sign.)

Q2. Advertising department expenses of $47,500 and purchasing department expenses of $27,100 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	$	166,600			880
Magazines		78,200			660
Newspapers		95,200			660
Total	$	340,000			2,200

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

Q3. Jessica Porter works in both the jewelry department and the cosmetics department of a retail store. She assists customers in both departments and arranges and stocks merchandise in both departments. The store allocates her $27,100 annual wages between the two departments based on the time worked in the two departments in each two-week pay period. On average, Jessica reports the following hours and activities spent in the two departments.

Activities	Hours
Selling in jewelry department	47.0
Arranging and stocking merchandise in jewelry department	9.0
Selling in cosmetics department	15.0
Arranging and stocking merchandise in cosmetics department	10.0
Idle time spent waiting for a customer to enter one of the departments	7.0

Allocate Jessica’s annual wages between the two departments.

Q4. 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	$	84,500	Number of employees
Utilities		70,000	Square feet occupied
Insurance		32,500	Value of assets in use
Total	$	187,000

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

Department	Employees				Square Feet				Asset Values
Materials		40				39,000				$	12,000
Personnel		10				19,500					1,600
Manufacturing		84				107,250					47,200
Packaging		66				29,250					19,200
Total		200				195,000				$	80,000

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.

Q5. Below are departmental income statements for a guitar manufacturer. The manufacturer is considering eliminating its electric guitar department since it has a net loss. The company classifies advertising, rent, and utilities expenses as indirect.

WHOLESALE GUITARS Departmental Income Statements For Year Ended December 31, 2019
	Acoustic			Electric
Sales	$	102,700		$	83,200
Cost of goods sold		44,775			47,550
Gross profit		57,925			35,650
Operating expenses
Advertising expense		5,075			4,290
Depreciation expense—Equipment		10,120			8,520
Salaries expense		19,600			17,900
Supplies expense		1,980			1,750
Rent expense		7,015			5,960
Utilities expense		2,985			2,600
Total operating expenses		46,775			41,020
Net income (loss)	$	11,150		$	(5,370	)

1. Prepare a departmental contribution report that shows each department’s contribution to overhead.
2. Based on contribution to overhead, should the electric guitar department be eliminated?

Q6. Jansen Company reports the following for its ski department for the year 2019. All of its costs are direct, except as noted.

Sales	$	605,000
Cost of goods sold		435,000
Salaries		113,000	($25,400 is indirect)
Utilities		17,400	($5,900 is indirect)
Depreciation		48,400	($17,200 is indirect)
Office expenses		24,600	(all indirect)

1. Prepare a departmental income statement for 2019.

2. & 3. Prepare a departmental contribution to overhead report for 2019. Based on these two performance reports, should Jansen eliminate the ski department?

Q7. 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 $85,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $38,000.

Compute the return on investment for each Fast & Great Burgers alternative. Using return on investment as your only criterion, which location (A or B) should the company open? (The chain currently generates an 19% return on total assets.)

Q8. 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	$	42,250,000		$	3,211,000		$	16,900,000
Sporting goods		19,350,000			2,322,000			12,900,000

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 12% 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 14% return on investment. Should the new investment opportunity be accepted?

Q9. 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	$	42,250,000		$	3,211,000		$	16,900,000
Sporting goods		19,350,000			2,322,000			12,900,000

Compute profit margin and investment turnover for each department. Which department generates the most net income per dollar of sales? Which department is most efficient at generating sales from average invested assets?

Q10. A food manufacturer reports the following for two of its divisions for a recent year.

($ millions)	Beverage Division				Cheese Division
Invested assets, beginning	$	2,697			$	4,490
Invested assets, ending		2,611				4,418
Sales		2,699				3,943
Operating income		367				652

1. Compute return on investment.
2. Compute profit margin.
3. Compute investment turnover for the year.

Q11. A food manufacturer reports the following for two of its divisions for a recent year.

($ millions)	Beverage Division				Cheese Division
Invested assets, beginning	$	2,697			$	4,490
Invested assets, ending		2,611				4,418
Sales		2,699				3,943
Operating income		367				652

Assume that each of the company’s divisions has a required rate of return of 6%. Compute residual income for each division. (Enter your answers in millions.)

Q12. The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $106 each. Each trailer incurs $33 of variable manufacturing costs. The Trailer division has capacity for 21,000 trailers per year and incurs fixed costs of $420,000 per year.

Required:
1. Assume the Assembly division of Baxter Bicycles wants to buy 4,100 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles’s divisions?
2. Assume the Trailer division currently only sells 10,300 Trailers to outside customers, and the Assembly division wants to buy 4,100 trailers per year from the Trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Bicycles’s divisions?

Q13. Heart & Home Properties is developing a subdivision that includes 460 home lots. The 190 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 270 lots in the Hilltop section offer unobstructed views. The expected selling price for each Canyon lot is $59,000 and for each Hilltop lot is $107,000. The developer acquired the land for $2,400,000 and spent another $1,600,000 on street and utilities improvements.

Assign the joint land and improvement costs to the lots using the value basis of allocation and determine the average cost per lot. (Do not round your intermediate calculations.)

Q14. Pirate Seafood Company purchases lobsters and processes them into tails and flakes. It sells the lobster tails for $19.70 per pound and the flakes for $14.30 per pound. On average, 100 pounds of lobster are processed into 53 pounds of tails and 24 pounds of flakes, with 23 pounds of waste. Assume that the company purchased 3,700 pounds of lobster for $4 per pound and processed the lobsters with an additional labor cost of $6,500. No materials or labor costs are assigned to the waste. If 1,826 pounds of tails and 811 pounds of flakes are sold, calculate the allocated cost of the sold items and the allocated cost of the ending inventory. The company allocates joint costs on a value basis. (Round your answers to nearest whole number. Round cost per pound answers to 2 decimal places.)

Q15. Billie Whitehorse, the plant manager of Travel Free’s Indiana plant, is responsible for all of that plant’s costs other than her own salary. The plant has two operating departments and one service department. The camper and trailer operating departments manufacture different products and have their own managers. The office department, which Whitehorse also manages, provides services equally to the two operating departments. A budget is prepared for each operating department and the office department. The company’s responsibility accounting system must assemble information to present budgeted and actual costs in performance reports for each operating department manager and the plant manager. Each performance report includes only those costs that a particular operating department manager can control: raw materials, wages, supplies used, and equipment depreciation. The plant manager is responsible for the department managers’ salaries, utilities, building rent, office salaries other than her own, and other office costs plus all costs controlled by the two operating department managers. The annual departmental budgets and actual costs for the two operating departments follow.

	Campers			Trailers			Combined			Campers			Trailers			Combined
Raw materials	$	196,000		$	276,600		$	472,600		$	195,100		$	273,800		$	468,900
Employee wages		104,950			206,000			310,950			107,800			208,000			315,800
Dept. manager salary		44,000			53,000			97,000			44,500			53,700			98,200
Supplies used		33,200			92,000			125,200			32,900			92,200			125,100
Depreciation—Equip.		61,000			126,000			187,000			60,600			127,000			187,600
Utilities		3,800			5,000			8,800			3,300			5,600			8,900
Building rent		6,000			9,100			15,100			5,300			8,900			14,200
Office department costs		71,750			71,750			143,500			67,550			67,550			135,100
Totals	$	520,700		$	839,450		$	1,360,150		$	517,050		$	836,750		$	1,353,800

The office department’s annual budget and its actual costs follow.

	Budget			Actual
Plant manager salary	$	82,000		$	102,000
Other office salaries		34,500			26,500
Other office costs		27,000			6,600
Totals	$	143,500		$	135,100

Required:
1. Prepare responsibility accounting performance reports that list costs controlled by the following.
a. Manager of the Camper department.
b. Manager of the Trailer department.
c. Manager of the Indiana plant.

In each report, include the budgeted and actual costs and show the amount that each actual cost is over or under the budgeted amount.

a. Prepare responsibility accounting performance reports that list controllable costs. In each report, include the budgeted and actual costs and show the amount that each actual cost is over or under the budgeted amount for manager of the Camper department. (Under budget amounts should be indicated by a minus sign.)

b. Prepare responsibility accounting performance reports that list controllable costs. In each report, include the budgeted and actual costs and show the amount that each actual cost is over or under the budgeted amount for manager of the Trailer department. (Under budget amounts should be indicated by a minus sign.)

c. Prepare responsibility accounting performance reports that list controllable costs. In each report, include the budgeted and actual costs and show the amount that each actual cost is over or under the budgeted amount for manager of the Indiana plant. (Under budget amounts should be indicated by a minus sign.)

Q16. Williams Company began operations in January 2019 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.

WILLIAMS COMPANY Departmental Income Statements For Year Ended December 31, 2019
	Clock			Mirror			Combined
Sales	$	230,000		$	85,000		$	315,000
Cost of goods sold		112,700			52,700			165,400
Gross profit		117,300			32,300			149,600
Direct expenses
Sales salaries		20,500			8,400			28,900
Advertising		2,100			700			2,800
Store supplies used		1,150			550			1,700
Depreciation—Equipment		1,400			600			2,000
Total direct expenses		25,150			10,250			35,400
Allocated expenses
Rent expense		7,100			4,020			11,120
Utilities expense		2,600			1,800			4,400
Share of office department expenses		11,500			7,000			18,500
Total allocated expenses		21,200			12,820			34,020
Total expenses		46,350			23,070			69,420
Net income	$	70,950		$	9,230		$	80,180

Williams plans to open a third department in January 2020 that will sell paintings. Management predicts that the new department will generate $61,000 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $7,000; advertising, $1,000; store supplies, $500; and equipment depreciation, $800. It will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new Painting department will fill one-fifth of the space presently used by the Clock department and one-fourth used by the Mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the Painting department to increase total office department expenses by $7,200. Since the Painting department will bring new customers into the store, management expects sales in both the Clock and Mirror departments to increase by 8%. No changes for those departments’ gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales.

Required:
Prepare departmental income statements that show the company’s predicted results of operations for calendar-year 2020 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

Q17. USA Airlines uses the following performance measures. Classify each of the performance measures below into the most likely balanced scorecard perspective it relates to. Select your answers using C (customer), P (internal process), I (innovation and growth), or F (financial).

Q18.

	Current Year			Prior Year
Accounts payable, end of year	$	9,283		$	13,228
Accounts receivable, net, end of year		30,565			18,930
Inventory, end of year		11,584			11,095
Net sales		161,000			108,000
Cost of goods sold		78,000			116,000

(1) Use the information above to compute the number of days in the cash conversion cycle for each year.
(2) Did the company manage cash more effectively in the current year?

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