Exercises -
Exercise 1 - Prepare a responsibility report for a given management level
The following information refers to the inspection department of a chemical packaging plant for Septmber:
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Amount
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Over or (Under) Budget
|
|
Supplies
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$54,000
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$(10,800)
|
|
Repairs and maintenance
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270,000
|
21,600
|
|
Overtime paid to inspectors
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108,000
|
10,800
|
|
Salary of inspection department manager
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32,400
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(5,400)
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Salary of plant manager
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43,200
|
-0-
|
|
Allocation of company accounting costs
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32,400
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10,800
|
|
Allocation of building depredation to the inspection department
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21,600
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(5,400)
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Using this information, prepare a responsibility report for the manager of the inspection department for September, Include those items for which you think the inspection department manager would be held responsible.
Exercise 2 - Prepare an income statement for a segment in the contribution margin format
Present the following information for the Hardware Division of ABC Computer Company, using the contribution margin format, excluding indirect fixed expenses:
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Sales
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$1,400,000
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Variable selling and administrative expenses
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100,000
|
|
Fixed direct manufacturing expenses
|
35,000
|
|
Fixed indirect manufacturing expenses
|
56,000
|
|
Variable manufacturing expenses
|
400,000
|
|
Fixed direct selling and administrative expenses
|
175,000
|
|
Fixed indirect selling and administrative expenses
|
28,000
|
Exercise 3 - Prepare an income statement for a segment using the contribution margin format; determine effect of elimination of segment on company income
Given the following data, prepare a schedule that shows contribution margin, contribution to indirect expenses, and net income of the Sharks Division of Hockey, Inc.:
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Direct fixed expenses
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$ 324,000
|
|
Indirect fixed expenses
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259,200
|
|
Sales
|
2,100,000
|
|
Variable expenses
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1,500,000
|
What would be the effect on the company income if the segment were eliminated?
Exercise 4 - Allocate expense to various segments using a specified allocation base
Three segments (A, B, and C) of Trump Enterprises have net sales of $300,000, $150,000, and $50,000, respectively. A decision is made to allocate the pool of $25,000 of administrative overhead expenses of the home office to the segments, using net sales as the basis for allocation.
a. How much of the $25,000 should be allocated to each segment?
b. If Segment C is eliminated, how much of the $25,000 will be allocated to A and B?
Exercise 5 - Calculate return on investment, margin, and turnover for a segment
Two segments (Mountain Bike and Road Bike) showed the following data for the most recent year:
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Mountain Bike
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Road Bike
|
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Contribution to indirect expenses
|
$840,000
|
$504,000
|
|
Assets directly used by and identified with the segment
|
2,520,000
|
2,184,000
|
|
Sales
|
3,360,000
|
6,720,000
|
a. Calculate return on investment for each segment in the most direct manner.
b. Calculate return on investment using the margin and turnover components.
Exercise 6 - Determine the effect on margin, turnover, and return on investment when the variable are altered
Calculate the new margin, turnover, and return on investment of the Mountain Bike segment in Exercise 5 for each of the following changes. Consider each change independently of the others.
a. Direct variable expenses were reduced by $33,600. Sales and assets were unaffected.
b. Assets used by the segment were reduced by $540,000, while income and sales were unaffected.
c. An advertising campaign increased sales by $336,000 and income by $50,000. Assets directly used by the segment were unaffected.
Exercise 7 - Calculate the return on investment in evaluating the income performance of a segment manager and the rate of income contribution of a segment
The following data are available for segment A of ABC Company:
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Net income of the segment
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$50,000
|
|
Contribution to indirect expenses
|
40,000
|
|
Controllable income by manager
|
48,000
|
|
Assets directly used by the segment
|
360,000
|
|
Assets under the control of the segment manager
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240,000
|
Determine the return on investment for evaluating (a) the income performance of the manager of Segment A and (b) the rate of income contribution of the segment.
Exercise 8 - Determine residual income in evaluating segments
Travel Company has three segments: Air, Land, and Sea. Data concerning income and investment follow:
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Air
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Land
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Sea
|
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Contribution to indirect expenses
|
$43,200
|
$86,400
|
$115,200
|
|
Assets directly used by and identified with the segment
|
288,000
|
576,000
|
$1,296,000
|
Assuming that the cost of capital on investment is 12%, calculate the residual income of each of the segments. Do the results indicate that any of the segments should be eliminated?
Exercise 9 - Compute labor, and overhead variances
Based on a standard volume of output of 96,000 units per month, the standard cost of the product manufactured by Tahoe Company consists of:
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Direct materials (0.25 pounds x $8 per pound)
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$2.00
|
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Direct labor (0.5 hours x $7.60 per hour)
|
3.80
|
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Variable manufacturing overhead
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2.50
|
|
Fixed manufacturing overhead ($144,000 in total)
|
1.50
|
|
Total
|
$9.80
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A total of 25,200 pounds of materials was purchased at $8.40 per pound. During May, 98,400 units were produced with the following costs:
|
Direct materials used (24,000 pounds at $8.40)
|
$201,600
|
|
Direct labor (50,000 hours at $7.80)
|
390,000
|
|
Variable manufacturing overhead
|
249,000
|
|
Fixed manufacturing overhead
|
145,000
|
Required: Compute the materials price and usage variances, the labor rate and efficiency variances, and the overhead budget and volume variances. (Overhead is applied based on units produced.)
Exercise 10 - Business Decision Case - Evaluate computation of a project's net present value; determine acceptability of project
Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%.
The company's new accountant computed the net present value of the project using a minimum required rate of return of 16% (the company's cost of capital). The accountant's computations follow:
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Cash inflows
|
$90,000
|
|
Cash outflows
|
30,000
|
|
Net cash inflow
|
$60,000
|
|
Present value factor at 16%
|
X 4.833
|
|
Present value of net cash inflow
|
$289,980
|
|
Initial cash outlay
|
225,000
|
|
Net present value
|
$64,980
|
Required -
a. Are the accountant's computations correct? If not, compute the correct net present value.
b. Is this capital project acceptable to the company? Why or why not?