Exercises
Exercise A The following information refers to the inspection department of a chemical packaging plant for September:
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Amount
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Over or (Under) Budget
|
|
Supplies
|
$ 54,000
|
$ (10,800)
|
|
Repairs and maintenance
|
270,000
|
21,600
|
|
Overtime paid to inspectors
|
108,000
|
10,800
|
|
Salary of inspection department
|
32,400
|
(5,400)
|
|
manager
|
|
|
|
Salary of plant manager
|
43,200
|
-0-
|
|
Allocation of company accounting
|
32,400
|
10,800
|
|
costs
|
|
|
|
Allocation of building depreciation to
|
21,600
|
(5,400)
|
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 B Present the following information for the Hardware Division of ABC Computer Company,
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Sales
|
$ 1,400,000
|
|
Variable selling and administrative
|
100,000
|
|
expenses
|
|
|
Fixed direct manufacturing expenses
|
35,000
|
|
Fixed indirect manufacturing expenses
|
56,000
|
|
Variable manufacturing expenses
|
400,000
|
|
Fixed direct selling and administrative
|
175,000
|
|
expenses
|
|
|
Fixed indirect selling and administrative
|
28,000
|
|
expenses
|
|
|
|
Exercise C 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
|
$ 324,000
|
|
Indirect fixed expenses
|
259,200
|
|
Sales
|
2,100,000
|
|
Variable expenses
|
1,500,000
|
What would be the effect on the company income if the segment were eliminated?
Exercise D Three segments (A, B, and C) of Trump Enterprises have net sales of USD 300,000, USD 150,000, and USD 50,000, respectively. A decision is made to allocate the pool of USD 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 USD 25,000 should be allocated to each segment?
b. If Segment C is eliminated, how much of the USD 25,000 will be allocated to A and B?
Exercise E Two segments (Mountain Bike and Road Bike) showed the following data for the most recent year
|
|
Mountain
|
Road bike
|
|
bike
|
|
|
Contribution to indirect expenses
|
$ 840,000
|
$ 504,000
|
|
Assets directly used by and identified
|
2,520,000
|
2,184,000
|
|
with the segment
|
|
|
|
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 F Calculate the new margin, turnover, and return on investment of the Mountain Bike segment for each of the following changes. Consider each change independently of the others.
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 F Calculate the new margin, turnover, and return on investment of the Mountain Bike segment for each of the following changes. Consider each change independently of the others.
|
Net income of the segment
|
$ 50,000
|
|
Contribution to indirect expenses
|
40,000
|
|
Controllable income by manager
|
48,000
|
|
Assets directly used by the manager
|
360,000
|
|
Assets under the control of the segment
|
240,000
|
|
manager
|
|
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 H Travel Company has three segments: Air, Land, and Sea. Data concerning income and investment follow:
Air Land Sea
Contribution to indirect expenses $ 43,200 $ 86,400 $ 115,200
Assets directly used by and identified 288,000 576,000 1,296,000
with the segment
Assuming that the cost of capital on investment is 12 per cent, calculate the residual income of each of the segments. Do the results indicate that any of the segments should be eliminated?