#1
Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 780 hours each month to produce 2,600 sets of covers. The standard costs associated with this level of production are: |
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|
Total |
Per Set of Covers |
Direct materials |
$59,280 |
$22.80 |
Direct labor |
$7,332 |
2.82 |
Variable manufacturing overhead
(based on direct labor-hours) |
$1,560 |
0.60 |
|
|
$26.22 |
During August, the factory worked only 780 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month: |
|
Total |
Per Set of Covers |
Direct materials (8,910 yards) |
$62,370 |
$23.10 |
Direct labor |
$8,112 |
3.00 |
Variable manufacturing overhead |
$3,120 |
1.16 |
|
|
27.26 |
At standard, each set of covers should require 3 yards of material. All of the materials purchased during the month were used in production. |
Requirement 1: |
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Compute the direct materials price and quantity variances for August (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the “$” sign in your response.): |
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|
|
|
Materials price variance |
$ $ |
(Click to select)Favorable None Unfavorable |
Materials quantity variance |
$ $ |
(Click to select)NoneFU |
Requirement 2: |
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Compute the direct labor rate and efficiency variances for August (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the “$” sign in your response.): |
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|
|
Labor rate variance |
$ $ |
(Click to select)UNoneF |
Labor efficiency variance |
$ |
(Click to select)Favorable None Unfavorable |
Requirement 3: |
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Compute the variable overhead rate and efficiency variances for August(Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.): |
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|
|
|
Variable overhead rate variance |
$ |
(Click to select)None Unfavorable Favorable |
Variable overhead efficiency variance |
$ |
(Click to select)UNoneF |
#2
Erie Company manufactures a small CD player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate CD player are as follows: |
Standard Hours |
Standard Rate per Hour |
Standard Cost |
24 minutes |
$6 |
$2.4 |
During August, 8,490 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $50,091 for the month. |
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Requirement 1: |
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(a) |
What direct labor cost should have been incurred to make 19,500 units of the Jogging Mate? (Omit the “$” sign in your response.) |
|
Standard direct labor cost |
$ |
(b) |
By how much does this differ from the cost that was incurred? (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
Total variance |
$ |
(Click to select)NoneUF |
Requirement 2: |
Break down the difference in cost from Requirement 1 above into a labor rate variance and a labor efficiency variance. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Labor rate variance |
$ |
(Click to select)FUNone |
Labor efficiency variance |
$ |
(Click to select)UNoneF |
Requirement 3: |
The budgeted variable manufacturing overhead rate is $4.5 per direct labor-hour. During August, the company incurred $44,148 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Variable Overhead Rate Variance |
$ |
(Click to select)NoneUF |
Variable Overhead Efficiency Variance |
$ |
(Click to select)UNoneF |
#3
Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: |
|
Standard Quantity or Hours |
Standard Price or Rate |
Standard Cost |
Direct materials |
7.5 pounds |
$2.9 per pound |
$21.75 |
Direct labor |
0.3 hours |
$9.8 per hour |
$2.94 |
During the most recent month, the following activity was recorded: |
|
a. |
20,650 pounds of material were purchased at a cost of $2.7 per pound. |
b. |
All of the material purchased was used to produce 2,500 units of Zoom. |
c. |
670 hours of direct labor time were recorded at a total labor cost of $7,638. |
Requirement 1: |
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Compute the direct materials price and quantity variances for the month. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).Input all amounts as positive values. Omit the “$” sign in your response.) |
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|
|
|
Materials price variance |
$ |
(Click to select)UNoneF |
Materials quantity variance |
$ |
(Click to select)NoneUF |
Requirement 2: |
Compute the direct labor rate and efficiency variances for the month. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Labor rate variance |
$ |
(Click to select)NoneFU |
Labor efficiency variance |
$ |
(Click to select)UNoneF |
#4
Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy: |
Direct materials: 7 microns per toy at $0.3 per micron |
Direct labor: 1.4 hours per toy at $6.8 per hour |
During July, the company produced 4,900 Maze toys. Production data for the month on the toy follow: |
Direct materials: |
71,000 microns were purchased at a cost of $0.27 per micron. 28,125 of these microns were still in inventory at the end of the month. |
Direct labor: |
7,160 direct labor-hours were worked at a cost of $50,836. |
Requirement 1: |
Compute the direct materials price and quantity variances for July. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the “$” sign in your response.) |
|
|
|
Material price variance |
$ |
(Click to select)NoneFU |
Material quantity variance |
$ |
(Click to select)UFNone |
#5
Victoria Chocolates, Ltd., makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company’s products, the Empire Truffle. This product is made with the finest white chocolate and various fillings. The data below pertain only to the white chocolate used in the product (the currency is stated in pounds denoted here as £): |
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|
|
Material requirements, kilograms of white chocolate per dozen truffles |
0.86 |
kilograms |
Allowance for waste, kilograms of white chocolate per dozen truffles |
0.03 |
kilograms |
Allowance for rejects, kilograms of white chocolate per dozen truffles |
0.02 |
kilograms |
Purchase price, finest grade white chocolate |
£10 |
per kilogram |
Purchase discount |
3% |
of purchase price |
Shipping cost from the supplier in Belgium |
£0.25 |
per kilogram |
Receiving and handling cost |
£0.15 |
per kilogram |
Requirement 1: |
Determine the standard price of a kilogram of white chocolate. (Round your answer to 2 decimal places. Omit the “£” sign in your response.) |
Standard price |
£ |
Requirement 2: |
Determine the standard quantity of white chocolate for a dozen truffles. (Round your answer to 2 decimal places.) |
Standard quantity |
kilograms |
Requirement 3: |
Determine the standard cost of the white chocolate in a dozen truffles. (Round your answer to 2 decimal places. Omit the “£” sign in your response.) |
Standard cost |
£ |
#6
Management of Mittel Rhein AG of Köln, Germany, would like to reduce the amount of time between when a customer places an order and when the order is shipped. For the first quarter of operations during the current year the following data were reported: |
|
|
|
Inspection time |
0.5 |
days |
Wait time (from order to start of production) |
16.7 |
days |
Process time |
2.8 |
days |
Move time |
1.5 |
days |
Queue time |
4.3 |
days |
Requirement 1: |
Compute the throughput time. (Round your answer to 1 decimal place.) |
Throughput time |
days |
Requirement 2: |
Compute the manufacturing cycle efficiency (MCE) for the quarter. (Round your answer to 2 decimal places.) |
Manufacturing cycle efficiency |
|
Requirement 3: |
What percentage of the throughput time was spent in non-value-added activities? (Round your answer to the nearest whole number. Omit the “%” sign in your response.) |
Throughput time |
% |
Requirement 4: |
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Compute the delivery cycle time.(Round your answer to 1 decimal place.) |
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Delivery cycle time |
days |
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Requirement 5: |
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If by using Lean Production all queue time during production is eliminated, what will be the new MCE? (Round your answer to 3 decimal places.) |
Manufacturing cycle efficiency |
|
#7
Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours. |
In the most recent month, 200,000 items were shipped to customers using 9,900 direct labor hours. The company incurred a total of $30,195 in variable overhead costs. |
According to the company’s standards, 0.05 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.1 per direct labor−hour. |
(a) |
What variable overhead cost should have been incurred to fill the orders for the 200,000 items? (Omit the “$” sign in your response.) |
Variable overhead cost |
$ |
(b) |
How much does this differ from the actual variable overhead cost? (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
Total variable overhead variance |
$ |
(Click to select)FUNone |
(C Break down the difference computed in Requirement 1 above into a variable overhead rate variance and a variable overhead efficiency variance. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Variable overhead rate variance |
$ |
(Click to select)UNoneF |
Variable overhead efficiency variance |
$ |
(Click to select)NoneUF |
#8
SkyChefs, Inc., prepares in-flight meals for a number of major airlines. One of the company’s products is grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week, the company prepared 7,000 of these meals using 1,430 direct labor-hours. The company paid these direct labor workers a total of $14,658 for this work, or $10.25 per hour. |
According to the standard cost card for this meal, it should require 0.21 direct labor-hours at a cost of $10 per hour. |
(a) |
What direct labor cost should have been incurred to prepare 7,000 meals? (Omit the “$” sign in your response) |
Direct labor cost |
$ |
(b) |
How much does this differ from the actual direct labor cost? (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
Total direct labor variance |
$ |
(Click to select)UNoneF |
(C Break down the difference computed in Requirement 1 above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Labor rate variance |
$ |
(Click to select)UNoneF |
Labor efficiency variance |
$ |
(Click to select)UFNone |
#9
Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 37,000 helmets, using 22,940 kilograms of plastic. The plastic cost the company RM197,284. (The currency in Malaysia is the ringgit, which is denoted here by RM.) |
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According to the standard cost card, each helmet should require 0.54 kilograms of plastic, at a cost of RM9 per kilogram. |
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Requirement 1: |
|
(a) |
What cost for plastic should have been incurred to make 37,000 helmets? (Omit the “RM” sign in your response.) |
Cost incurred |
RM |
(b) |
How much greater or less is this than the cost that was incurred? (Omit the “RM” sign in your response.) |
Standard cost is (Click to select)greaterless by RM than the actual cost incurred. |
Requirement 2: |
Break down the difference computed in Requirement 1 above into a materials price variance and a materials quantity variance. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “RM” sign in your response.) |
|
||
Materials price variance |
RM |
(Click to select)UFNone |
Materials quantity variance |
RM |
(Click to select)UNoneF |
#10
Companhia Bradesco, S.A., of Brazil, an industrial supply store chain, has two divisions. The company’s contribution format income statement segmented by divisions for last year is given below (the currency in Brazil is the real, denoted here by R): |
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|
Division |
||
|
Total Company |
Plastics |
Glass |
Sales |
R3,499,900 |
R2,001,000 |
R1,498,900 |
Variable expenses |
1,714,051 |
960,480 |
753,571 |
Contribution margin |
1,785,849 |
1,040,520 |
745,329 |
Traceable fixed expenses: |
|
|
|
Advertising |
609,200 |
297,000 |
312,200 |
Depreciation |
226,300 |
113,000 |
113,300 |
Administration |
434,959 |
210,000 |
224,959 |
Total |
1,270,459 |
620,000 |
650,459 |
Division segment margin |
515,390 |
R420,520 |
R94,870 |
Common fixed expenses |
387,000 |
|
|
Net operating income |
R128,390 |
|
|
Top management doesn’t understand why the Glass Division has such a low segment margin when its sales are only 25 less than sales in the Plastics Division. Accordingly, management has directed that the Glass Division be further segmented into product lines. The following information is available on the product lines in the Glass Division: |
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|
Glass Division Product Lines |
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|
Flat Glass |
Auto Glass |
Specialty Glass |
Sales |
R503,000 |
701,900 |
294,000 |
Traceable fixed expenses: |
|
|
|
Advertising |
R80,400 |
R112,400 |
R119,400 |
Depreciation |
R24,900 |
R55,700 |
R32,700 |
Administration |
R29,600 |
R35,100 |
R41,700 |
Variable expenses as a percentage of sales |
65% |
39% |
52% |
Analysis shows that R118,559 of the Glass Division’s administration expenses are common to the product lines. |
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Requirement 1: |
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Prepare a contribution format segmented income statement for the Glass Division with segments defined as product lines. (Negative amounts other than the expenses should be indicated by a minus sign. Omit the “R” sign in your response.) |
|
Product Line |
|||
|
Glass Division |
Flat Glass |
Auto Glass |
Specialty Glass |
Sales |
R |
R |
R |
R |
Variable expenses |
|
|
|
|
Contribution margin |
|
|
|
|
Traceable fixed expenses: |
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|
|
|
Advertising |
|
|
|
|
Depreciation |
|
|
|
|
Administration |
|
|
|
|
Total |
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|
|
|
Product line segment margin |
|
R |
R |
R |
Common fixed expenses |
|
|
|
|
Administration |
|
|
|
|
Divisional segment margin |
R |
|
|
|
Requirement 2: |
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Management is surprised by Specialty Glass’s poor showing and would like to have the product line segmented by market. The following information is available about the two markets in which Specialty Glass is sold: |
|
Specialty Glass Markets |
|
|
|
|
|
Domestic |
Foreign |
Sales |
R196,000 |
R98,000 |
Traceable fixed expenses: |
|
|
Advertising |
R39,600 |
R79,800 |
Variable expenses as a percentage of sales |
43% |
70% |
All of Specialty Glass’s depreciation and administration expenses are common to the markets in which the product is sold. Calculate the following for the Specialty Glass product line with segments defined as markets. (Negative amounts should be indicated by a minus sign. Omit the “R” sign in your response.) |
Domestic market segment margin |
R |
Foreign market segment margin |
R |
Product line segment margin |
R |
Requirement 3: |
(a) |
Refer to the statement prepared in (Requirement 1) above. The sales manager wants to run a special promotional campaign on one of the product lines over the next month. A market study indicates that such a campaign would increase sales of Flat Glass by R200,000 or sales of Auto Glass by R146,000. The campaign would cost R29,000. Calculate the increased net operating income. (Omit the “R” sign in your response.) |
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|
Flat Glass |
Auto Glass |
Net operating income |
R |
R |
(b) |
Which product line should be chosen? |
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|
|
|
|
(Click to select)Auto Glass Flat Glass |
#11
Wingate Company, a wholesale distributor of videotapes, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement, which follows: |
|
|
Sales |
$1,520,000 |
Variable expenses |
544,600 |
Contribution margin |
975,400 |
Fixed expenses |
1,073,000 |
Net operating income (loss) |
-$97,600 |
In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information: |
|
Division |
||
|
East |
Central |
West |
Sales |
$460,000 |
$600,000 |
$460,000 |
Variable expenses as a percentage of sales |
52% |
21% |
39% |
Traceable fixed expenses |
$107,000 |
$321,000 |
$208,000 |
Requirement 1: |
Prepare a contribution format income statement segmented by divisions, as desired by the president. (Input all amount as positive value except divisional segment loss and net operating loss which should be indicated with a minus sign. Omit the “$” sign in your response.) |
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|
|
Division |
||
|
Total Company |
East |
Central |
West |
|
Sales |
$ |
$ |
$ |
$ |
|
Variable expenses |
|
|
|
|
|
Contribution margin |
|
|
|
|
|
Traceable fixed expenses |
|
|
|
|
|
Divisional segment margin |
|
$ |
$ |
$ |
|
Common fixed expenses not traceable to divisions |
|
|
|
|
|
Net operating (Click to select)incomeloss |
$ |
|
|
|
|
Requirement 2: |
(a) |
As a result of a marketing study, the president believes that sales in the West Division could be increased by 14% if monthly advertising in that division were increased by $21,000. Compute the Incremental net operating income. (Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.) |
Incremental net operating income |
$ |
(b) |
Would you recommend the increased advertising? |
(Click to select)NoYes |
#12
Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices-one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. |
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Assume that Minneapolis’ sales by major market are as follows: |
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|
|
|
Market |
|||
|
Minneapolis |
Medical |
Dental |
|||
Sales |
$510,000 |
100% |
$340,000 |
100% |
$170,000 |
100% |
Variable expenses |
306,000 |
60% |
221,000 |
65% |
85,000 |
50% |
Contribution margin |
204,000 |
40% |
119,000 |
35% |
85,000 |
50% |
Traceable fixed expenses |
61,200 |
12% |
17,000 |
5% |
44,200 |
26% |
Market segment margin |
142,800 |
28% |
$102,000 |
30% |
$40,800 |
24% |
Common fixed expenses not traceable to markets |
15,300 |
3% |
|
|
|
|
Office segment margin |
$127,500 |
25% |
|
|
|
|
The company would like to initiate an intensive advertising campaign in one of the two markets during the next month. The campaign would cost $6,800. Marketing studies indicate that such a campaign would increase sales in the Medical market by $59,500 or increase sales in the Dental market by $51,000. |
Required: |
||
Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market. (Omit the “$” sign in your response.) |
||
|
Medical |
Dental |
Increase in net operating income |
$ |
$ |
#13
Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format income statement for the company’s most recent year is given below: |
|
|
|
Office |
|||
|
Total Company |
Chicago |
Minneapolis |
|||
Sales |
$1,050,000 |
100% |
$210,000 |
100% |
$840,000 |
100% |
Variable expenses |
567,000 |
54% |
63,000 |
30% |
504,000 |
60% |
Contribution margin |
483,000 |
46% |
147,000 |
70% |
336,000 |
40% |
Traceable fixed expenses |
235,200 |
22% |
109,200 |
52% |
126,000 |
15% |
Office segment margin |
247,800 |
24% |
$37,800 |
18% |
$210,000 |
25% |
Common fixed expenses not traceable to offices |
168,000 |
16% |
|
|
|
|
Net operating income |
$79,800 |
8% |
|
|
|
|
Requirement 1: |
By how much would the company’s net operating income increase if Minneapolis increased its sales by $105,000 per year? Assume no change in cost behavior patterns. (Omit the “$” sign in your response.) |
Net operating income |
$ |
Refer to the original data. Assume that sales in Chicago increase by $70,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs. Prepare a new segmented income statement for the company. (Round your percentage amounts to 2 decimal places. Input all amount as positive value. Omit the “$” and “%” signs in your response.) |
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|
Segments |
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|
Total Company |
Chicago |
Minneapolis |
|||
|
Amount |
% |
Amount |
% |
Amount |
% |
Sales |
$ |
|
$ |
|
$ |
|
Variable expenses |
|
|
|
|
|
|
Contribution margin |
|
|
|
|
|
|
Traceable fixed expenses |
|
|
|
|
|
|
Office segment margin |
|
|
$ |
|
$ |
|
Common fixed expenses not traceable to segments |
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|
|
|
|
|
Net operating income |
$ |
|
|
|
|
|
#14
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: |
|
Division A |
Division B |
Division C |
Sales |
$5,100,000 |
$9,000,000 |
$8,600,000 |
Average operating assets |
$1,590,000 |
$5,900,000 |
$1,500,000 |
Net operating income |
$305,000 |
$896,000 |
$330,000 |
Minimum required rate of return |
20% |
23% |
22% |
Requirement 1: |
|||
Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round all calculations to 2 decimal places, e.g., .1234 as 12.34. Omit the “%” sign in your response.) |
|
ROI |
Division A |
% |
Division B |
% |
Division C |
% |
Compute the residual income for each division. (Leave no cells blank, be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Omit the “$” sign in your response.) |
|
Division A |
Division B |
Division C |
Residual income |
$ |
$ |
$ |
#15
Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below (the currency is the Australian dollar, denoted here as $): |
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|
Division |
|
|
Queensland |
New South Wales |
Sales |
$1,000,000 |
$1,750,000 |
Average operating assets |
$500,000 |
$500,000 |
Net operating income |
$90,000 |
$105,000 |
Property, plant, and equipment (net) |
$250,000 |
$200,000 |
Requirement 1: |
Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. (Round all calculations to 2 decimal places. Omit the “%” sign in your response.) |
|
ROI |
Queensland |
% |
New South Wales |
% |
Requirement 2: |
Which divisional manager seems to be doing the better job? |
(Click to select) New South WalesQueensland
#16
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow (in millions of yen, denoted by ¥): |
||
|
Division |
|
|
Osaka |
Yokohama |
Sales |
¥8,500,000 |
¥20,900,000 |
Net operating income |
¥920,000 |
¥2,570,000 |
Average operating assets |
¥2,800,000 |
¥8,300,000 |
Requirement 1: |
For each division, compute the return on investment (ROI) in terms of margin and turnover. (Round your answers to 2 decimal places. Omit the “%” sign in your response.) |
|
Osaka |
Yokohama |
Return on investment |
% |
% |
|
|
|
Requirement 2: |
Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 20%. Compute the residual income for each division. (Omit the “¥” sign in your response.) |
|
Osaka |
Yokohama |
Residual income |
¥ |
¥ |
|
|
|
Requirement 3: |
Is Yokohama’s greater amount of residual income an indication that it is better managed? |
(Click to select)YesNo
#17
Royal Lawncare Company produces and sells two packaged products, Weedban and Greengrow. Revenue and cost information relating to the products follow: |
||
|
Product |
|
|
Weedban |
Greengrow |
Selling price per unit |
$10.00 |
$33.00 |
Variable expenses per unit |
$3.00 |
$14.00 |
Traceable fixed expenses per year |
$128,000 |
$49,000 |
Common fixed expenses in the company total $111,000 annually. Last year the company produced and sold 38,500 units of Weedban and 21,000 units of Greengrow. |
|||
Required: |
|||
Prepare a contribution format income statement for the year segmented by product lines. (Input all amount as positive value. Omit the “$” sign in your response.) |
|||
|
Total |
Weedban |
Greengrow |
Sales |
$ |
$ |
$ |
Variable expenses |
|
|
|
Contribution margin |
|
|
|
Traceable fixed expenses |
|
|
|
Product line segment margin |
|
$ |
$ |
Common fixed expenses not traceable to products |
|
|
|
Net operating income |
$ |
|
|
#18
Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 43,000 helmets, using 24,940 kilograms of plastic. The plastic cost the company RM189,544. (The currency in Malaysia is the ringgit, which is denoted here by RM.) |
|
According to the standard cost card, each helmet should require 0.5 kilograms of plastic, at a cost of RM8 per kilogram. |
|
Requirement 1: |
|
(a) |
What cost for plastic should have been incurred to make 43,000 helmets? (Omit the “RM” sign in your response.) |
Cost incurred |
RM |
(b) |
How much greater or less is this than the cost that was incurred? (Omit the “RM” sign in your response.) |
Standard cost is (Click to select)lessgreater by RM than the actual cost incurred. |
Requirement 2: |
Break down the difference computed in Requirement 1 above into a materials price variance and a materials quantity variance. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “RM” sign in your response.) |
|
||
Materials price variance |
RM |
(Click to select)NoneFU |
Materials quantity variance |
RM |
(Click to select)UNoneF |
#19
SkyChefs, Inc., prepares in-flight meals for a number of major airlines. One of the company’s products is grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week, the company prepared 14,000 of these meals using 3,460 direct labor-hours. The company paid these direct labor workers a total of $33,043 for this work, or $9.55 per hour. |
According to the standard cost card for this meal, it should require 0.25 direct labor-hours at a cost of $9.3 per hour. |
Requirement 1: |
(a) |
What direct labor cost should have been incurred to prepare 14,000 meals? (Omit the “$” sign in your response) |
Direct labor cost |
$ |
(b) |
How much does this differ from the actual direct labor cost? (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
Total direct labor variance |
$ |
(Click to select)FNoneU |
Requirement 2: |
||
Break down the difference computed in Requirement 1 above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Labor rate variance |
$ |
(Click to select)NoneUF |
Labor efficiency variance |
$ |
(Click to select)NoneUF |
#20
Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours. |
In the most recent month, 170,000 items were shipped to customers using 6,700 direct labor hours. The company incurred a total of $23,115 in variable overhead costs. |
According to the company’s standards, 0.04 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.5 per direct labor−hour. |
Requirement 1: |
|
(a) |
What variable overhead cost should have been incurred to fill the orders for the 170,000 items? (Omit the “$” sign in your response.) |
Variable overhead cost |
$ |
(b) |
How much does this differ from the actual variable overhead cost? (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
Total variable overhead variance |
$ |
(Click to select)FNoneU |
Requirement 2: |
||
Break down the difference computed in Requirement 1 above into a variable overhead rate variance and a variable overhead efficiency variance. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Variable overhead rate variance |
$ |
(Click to select)NoneFU |
Variable overhead efficiency variance |
$ |
(Click to select)UFNone |
#21
Management of Mittel Rhein AG of Köln, Germany, would like to reduce the amount of time between when a customer places an order and when the order is shipped. For the first quarter of operations during the current year the following data were reported: |
|
|
|
Inspection time |
0.4 |
days |
Wait time (from order to start of production) |
15.8 |
days |
Process time |
2.7 |
days |
Move time |
0.6 |
days |
Queue time |
3.9 |
days |
Requirement 1: |
Compute the throughput time. (Round your answer to 1 decimal place.) |
Throughput time |
days |
Requirement 2: |
Compute the manufacturing cycle efficiency (MCE) for the quarter. (Round your answer to 2 decimal places.) |
Manufacturing cycle efficiency |
|
Requirement 3: |
What percentage of the throughput time was spent in non-value-added activities? (Round your answer to the nearest whole number. Omit the “%” sign in your response.) |
Throughput time |
% |
Requirement 4: |
||
Compute the delivery cycle time.(Round your answer to 1 decimal place.) |
||
Delivery cycle time |
days |
|
Requirement 5: |
||
If by using Lean Production all queue time during production is eliminated, what will be the new MCE? (Round your answer to 3 decimal places.) |
Manufacturing cycle efficiency |
|
#22
Victoria Chocolates, Ltd., makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company’s products, the Empire Truffle. This product is made with the finest white chocolate and various fillings. The data below pertain only to the white chocolate used in the product (the currency is stated in pounds denoted here as £): |
|
|
|
Material requirements, kilograms of white chocolate per dozen truffles |
0.74 |
kilograms |
Allowance for waste, kilograms of white chocolate per dozen truffles |
0.02 |
kilograms |
Allowance for rejects, kilograms of white chocolate per dozen truffles |
0.01 |
kilograms |
Purchase price, finest grade white chocolate |
£9 |
per kilogram |
Purchase discount |
6% |
of purchase price |
Shipping cost from the supplier in Belgium |
£0.45 |
per kilogram |
Receiving and handling cost |
£0.1 |
per kilogram |
Requirement 1: |
Determine the standard price of a kilogram of white chocolate. (Round your answer to 2 decimal places. Omit the “£” sign in your response.) |
Standard price |
£ |
Requirement 2: |
Determine the standard quantity of white chocolate for a dozen truffles. (Round your answer to 2 decimal places.) |
Standard quantity |
kilograms |
Requirement 3: |
Determine the standard cost of the white chocolate in a dozen truffles. (Round your answer to 2 decimal places. Omit the “£” sign in your response.) |
Standard cost |
£ |
#23
Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy: |
Direct materials: 6 microns per toy at $0.33 per micron |
Direct labor: 1.5 hours per toy at $6.9 per hour |
During July, the company produced 4,600 Maze toys. Production data for the month on the toy follow: |
Direct materials: |
73,000 microns were purchased at a cost of $0.29 per micron. 38,500 of these microns were still in inventory at the end of the month. |
Direct labor: |
7,300 direct labor-hours were worked at a cost of $52,560. |
Requirement 1: |
Compute the direct materials price and quantity variances for July. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the “$” sign in your response.) |
|
|
|
Material price variance |
$ |
(Click to select)NoneFU |
Material quantity variance |
$ |
(Click to select)UNoneF |
#24
Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: |
|||
|
Standard Quantity or Hours |
Standard Price or Rate |
Standard Cost |
Direct materials |
7.5 pounds |
$3 per pound |
$22.5 |
Direct labor |
0.3 hours |
$10.4 per hour |
$3.12 |
During the most recent month, the following activity was recorded: |
|
a. |
21,100 pounds of material were purchased at a cost of $2.9 per pound. |
b. |
All of the material purchased was used to produce 2,600 units of Zoom. |
c. |
700 hours of direct labor time were recorded at a total labor cost of $8,610. |
Requirement 1: |
||
Compute the direct materials price and quantity variances for the month. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).Input all amounts as positive values. Omit the “$” sign in your response.) |
||
|
|
|
Materials price variance |
$ |
(Click to select)UNoneF |
Materials quantity variance |
$ |
(Click to select)NoneFU |
Requirement 2: |
Compute the direct labor rate and efficiency variances for the month. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Labor rate variance |
$ |
(Click to select)UFNone |
Labor efficiency variance |
$ |
(Click to select)UFNone |
#25
Erie Company manufactures a small CD player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate CD player are as follows: |
||
Standard Hours |
Standard Rate per Hour |
Standard Cost |
30 minutes |
$5.4 |
$2.7 |
During August, 10,220 hours of direct labor time were needed to make 19,400 units of the Jogging Mate. The direct labor cost totaled $53,144 for the month. |
||
Requirement 1: |
||
(a) |
What direct labor cost should have been incurred to make 19,400 units of the Jogging Mate? (Omit the “$” sign in your response.) |
|
Standard direct labor cost |
$ |
(b) |
By how much does this differ from the cost that was incurred? (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
Total variance |
$ |
(Click to select)UFNone |
Requirement 2: |
Break down the difference in cost from Requirement 1 above into a labor rate variance and a labor efficiency variance. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Labor rate variance |
$ |
(Click to select)NoneUF |
Labor efficiency variance |
$ |
(Click to select)NoneFU |
Requirement 3: |
The budgeted variable manufacturing overhead rate is $4.5 per direct labor-hour. During August, the company incurred $51,100 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (Indicate the effect of the variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.) |
|
|
|
Variable Overhead Rate Variance |
$ |
(Click to select)FNoneU |
Variable Overhead Efficiency Variance |
$ |
(Click to select)NoneFU |
#26
Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 780 hours each month to produce 1,950 sets of covers. The standard costs associated with this level of production are: |
||
|
Total |
Per Set of Covers |
Direct materials |
$38,610 |
$19.80 |
Direct labor |
$6,942 |
3.56 |
Variable manufacturing overhead
(based on direct labor-hours) |
$2,340 |
1.20 |
|
|
$24.56 |
During August, the factory worked only 790 direct labor-hours and produced 2,100 sets of covers. The following actual costs were recorded during the month: |
|
Total |
Per Set of Covers |
Direct materials (6,510 yards) |
$39,060 |
$18.60 |
Direct labor |
$7,900 |
3.76 |
Variable manufacturing overhead |
$4,740 |
2.26 |
|
|
24.62 |
At standard, each set of covers should require 3 yards of material. All of the materials purchased during the month were used in production. |
Requirement 1: |
||
Compute the direct materials price and quantity variances for August (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the “$” sign in your response.): |
||
|
|
|
Materials price variance |
$ |
(Click to select)UNoneF |
Materials quantity variance |
$ |
(Click to select)NoneFU |
Requirement 2: |
||
Compute the direct labor rate and efficiency variances for August (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the “$” sign in your response.): |
||
|
|
|
Labor rate variance |
$ |
(Click to select)FNoneU |
Labor efficiency variance |
$ |
(Click to select)UNoneF |
Requirement 3: |
||
Compute the variable overhead rate and efficiency variances for August(Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values. Omit the “$” sign in your response.): |
||
|
|
|
Variable overhead rate variance |
$ |
(Click to select)NoneFU |
Variable overhead efficiency variance |
$ |
(Click to select)NoneUF |
#27
Royal Lawncare Company produces and sells two packaged products, Weedban and Greengrow. Revenue and cost information relating to the products follow: |
||
|
Product |
|
|
Weedban |
Greengrow |
Selling price per unit |
$8.00 |
$35.00 |
Variable expenses per unit |
$2.90 |
$10.00 |
Traceable fixed expenses per year |
$135,000 |
$50,000 |
Common fixed expenses in the company total $96,000 annually. Last year the company produced and sold 43,500 units of Weedban and 22,500 units of Greengrow. |
|||
Required: |
|||
Prepare a contribution format income statement for the year segmented by product lines. (Input all amount as positive value. Omit the “$” sign in your response.) |
|||
|
Total |
Weedban |
Greengrow |
Sales |
$ |
$ |
$ |
Variable expenses |
|
|
|
Contribution margin |
|
|
|
Traceable fixed expenses |
|
|
|
Product line segment margin |
|
$ |
$ |
Common fixed expenses not traceable to products |
|
|
|
Net operating income |
$ |
|
|
#28
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow (in millions of yen, denoted by ¥): |
||
|
Division |
|
|
Osaka |
Yokohama |
Sales |
¥9,500,000 |
¥19,600,000 |
Net operating income |
¥930,000 |
¥2,670,000 |
Average operating assets |
¥2,800,000 |
¥9,400,000 |
Requirement 1: |
For each division, compute the return on investment (ROI) in terms of margin and turnover. (Round your answers to 2 decimal places. Omit the “%” sign in your response.) |
|
Osaka |
Yokohama |
Return on investment |
% |
% |
|
|
|
Requirement 2: |
Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 13%. Compute the residual income for each division. (Omit the “¥” sign in your response.) |
|
Osaka |
Yokohama |
Residual income |
¥ |
¥ |
|
|
|
Requirement 3: |
Is Yokohama’s greater amount of residual income an indication that it is better managed? |
(Click to select)NoYes
#29
Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below (the currency is the Australian dollar, denoted here as $): |
||
|
Division |
|
|
Queensland |
New South Wales |
Sales |
$1,000,000 |
$1,350,000 |
Average operating assets |
$250,000 |
$750,000 |
Net operating income |
$60,000 |
$148,500 |
Property, plant, and equipment (net) |
$260,000 |
$220,000 |
Requirement 1: |
Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. (Round all calculations to 2 decimal places. Omit the “%” sign in your response.) |
|
ROI |
Queensland |
% |
New South Wales |
% |
Requirement 2: |
Which divisional manager seems to be doing the better job? |
(Click to select) Queensland New South Wales
#30
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: |
|
Division A |
Division B |
Division C |
Sales |
$6,100,000 |
$10,600,000 |
$8,500,000 |
Average operating assets |
$1,590,000 |
$5,000,000 |
$2,300,000 |
Net operating income |
$291,000 |
$894,000 |
$276,000 |
Minimum required rate of return |
10% |
13% |
12% |
Requirement 1: |
Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round all calculations to 2 decimal places, e.g., .1234 as 12.34. Omit the “%” sign in your response.) |
|
ROI |
Division A |
% |
Division B |
% |
Division C |
% |
Requirement 2: |
Compute the residual income for each division. (Leave no cells blank, be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Omit the “$” sign in your response.) |
|
Division A |
Division B |
Division C |
Residual income |
$ |
$ |
$ |
#31
Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format income statement for the company’s most recent year is given below: |
|
|
|
Office |
|||
|
Total Company |
Chicago |
Minneapolis |
|||
Sales |
$600,000 |
100% |
$120,000 |
100% |
$480,000 |
100% |
Variable expenses |
324,000 |
54% |
36,000 |
30% |
288,000 |
60% |
Contribution margin |
276,000 |
46% |
84,000 |
70% |
192,000 |
40% |
Traceable fixed expenses |
134,400 |
22% |
62,400 |
52% |
72,000 |
15% |
Office segment margin |
141,600 |
24% |
$21,600 |
18% |
$120,000 |
25% |
Common fixed expenses not traceable to offices |
96,000 |
16% |
|
|
|
|
Net operating income |
$45,600 |
8% |
|
|
|
|
Requirement 1: |
||||||
By how much would the company’s net operating income increase if Minneapolis increased its sales by $60,000 per year? Assume no change in cost behavior patterns. (Omit the “$” sign in your response.) |
Net operating income |
$ |
Requirement 2: |
|
Refer to the original data. Assume that sales in Chicago increase by $40,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs. Prepare a new segmented income statement for the company. (Round your percentage amounts to 2 decimal places. Input all amount as positive value. Omit the “$” and “%” signs in your response.) |
|
|
|
Segments |
|||
|
Total Company |
Chicago |
Minneapolis |
|||
|
Amount |
% |
Amount |
% |
Amount |
% |
Sales |
$ |
|
$ |
|
$ |
|
Variable expenses |
|
|
|
|
|
|
Contribution margin |
|
|
|
|
|
|
Traceable fixed expenses |
|
|
|
|
|
|
Office segment margin |
|
|
$ |
|
$ |
|
Common fixed expenses not traceable to segments |
|
|
|
|
|
|
Net operating income |
$ |
|
|
|
|
|
#32
Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices-one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. |
||||||
Assume that Minneapolis’ sales by major market are as follows: |
||||||
|
|
|
Market |
|||
|
Minneapolis |
Medical |
Dental |
|||
Sales |
$690,000 |
100% |
$460,000 |
100% |
$230,000 |
100% |
Variable expenses |
414,000 |
60% |
299,000 |
65% |
115,000 |
50% |
Contribution margin |
276,000 |
40% |
161,000 |
35% |
115,000 |
50% |
Traceable fixed expenses |
82,800 |
12% |
23,000 |
5% |
59,800 |
26% |
Market segment margin |
193,200 |
28% |
$138,000 |
30% |
$55,200 |
24% |
Common fixed expenses not traceable to markets |
20,700 |
3% |
|
|
|
|
Office segment margin |
$172,500 |
25% |
|
|
|
|
The company would like to initiate an intensive advertising campaign in one of the two markets during the next month. The campaign would cost $9,200. Marketing studies indicate that such a campaign would increase sales in the Medical market by $80,500 or increase sales in the Dental market by $69,000. |
Required: |
||
Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market. (Omit the “$” sign in your response.) |
||
|
Medical |
Dental |
Increase in net operating income |
$ |
$ |
#33
Wingate Company, a wholesale distributor of videotapes, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement, which follows: |
|
|
Sales |
$1,340,000 |
Variable expenses |
513,200 |
Contribution margin |
826,800 |
Fixed expenses |
909,000 |
Net operating income (loss) |
-$82,200 |
In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information: |
|
Division |
||
|
East |
Central |
West |
Sales |
$310,000 |
$570,000 |
$460,000 |
Variable expenses as a percentage of sales |
48% |
26% |
47% |
Traceable fixed expenses |
$108,000 |
$327,000 |
$200,000 |
Requirement 1: |
Prepare a contribution format income statement segmented by divisions, as desired by the president. (Input all amount as positive value except divisional segment loss and net operating loss which should be indicated with a minus sign. Omit the “$” sign in your response.) |
|
|
|
Division |
||
|
Total Company |
East |
Central |
West |
|
Sales |
$ |
$ |
$ |
$ |
|
Variable expenses |
|
|
|
|
|
Contribution margin |
|
|
|
|
|
Traceable fixed expenses |
|
|
|
|
|
Divisional segment margin |
|
$ |
$ |
$ |
|
Common fixed expenses not traceable to divisions |
|
|
|
|
|
Net operating (Click to select)lossincome |
$ |
|
|
|
|
Requirement 2: |
(a) |
As a result of a marketing study, the president believes that sales in the West Division could be increased by 16% if monthly advertising in that division were increased by $25,000. Compute the Incremental net operating income. (Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.) |
Incremental net operating income |
$ |
(b) |
Would you recommend the increased advertising? |
(Click to select)YesNo |
#34
Companhia Bradesco, S.A., of Brazil, an industrial supply store chain, has two divisions. The company’s contribution format income statement segmented by divisions for last year is given below (the currency in Brazil is the real, denoted here by R): |
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Division |
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|
Total Company |
Plastics |
Glass |
Sales |
R3,502,600 |
R1,998,000 |
R1,504,600 |
Variable expenses |
1,734,336 |
959,040 |
775,296 |
Contribution margin |
1,768,264 |
1,038,960 |
729,304 |
Traceable fixed expenses: |
|
|
|
Advertising |
607,800 |
296,000 |
311,800 |
Depreciation |
233,000 |
118,000 |
115,000 |
Administration |
419,864 |
210,000 |
209,864 |
Total |
1,260,664 |
624,000 |
636,664 |
Division segment margin |
507,600 |
R414,960 |
R92,640 |
Common fixed expenses |
386,000 |
|
|
Net operating income |
R121,600 |
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|
Top management doesn’t understand why the Glass Division has such a low segment margin when its sales are only 25 less than sales in the Plastics Division. Accordingly, management has directed that the Glass Division be further segmented into product lines. The following information is available on the product lines in the Glass Division: |
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Glass Division Product Lines |
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|
Flat Glass |
Auto Glass |
Specialty Glass |
Sales |
R499,000 |
699,600 |
306,000 |
Traceable fixed expenses: |
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|
|
Advertising |
R80,300 |
R112,100 |
R119,400 |
Depreciation |
R25,300 |
R56,200 |
R33,500 |
Administration |
R30,100 |
R34,600 |
R41,700 |
Variable expenses as a percentage of sales |
66% |
41% |
52% |
Analysis shows that R103,464 of the Glass Division’s administration expenses are common to the product lines. |
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Requirement 1: |
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Prepare a contribution format segmented income statement for the Glass Division with segments defined as product lines. (Negative amounts other than the expenses should be indicated by a minus sign. Omit the “R” sign in your response.) |
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Product Line |
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|
Glass Division |
Flat Glass |
Auto Glass |
Specialty Glass |
Sales |
R |
R |
R |
R |
Variable expenses |
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|
Contribution margin |
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|
|
|
Traceable fixed expenses: |
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|
Advertising |
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|
|
|
Depreciation |
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|
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|
Administration |
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Total |
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|
Product line segment margin |
|
R |
R |
R |
Common fixed expenses |
|
|
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|
Administration |
|
|
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|
Divisional segment margin |
R |
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Requirement 2: |
Management is surprised by Specialty Glass’s poor showing and would like to have the product line segmented by market. The following information is available about the two markets in which Specialty Glass is sold: |
|
Specialty Glass Markets |
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|
|
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|
Domestic |
Foreign |
Sales |
R204,000 |
R102,000 |
Traceable fixed expenses: |
|
|
Advertising |
R39,700 |
R79,700 |
Variable expenses as a percentage of sales |
43% |
70% |
All of Specialty Glass’s depreciation and administration expenses are common to the markets in which the product is sold. Calculate the following for the Specialty Glass product line with segments defined as markets. (Negative amounts should be indicated by a minus sign. Omit the “R” sign in your response.) |
Domestic market segment margin |
R |
Foreign market segment margin |
R |
Product line segment margin |
R |
Requirement 3: |
(a) |
Refer to the statement prepared in (Requirement 1) above. The sales manager wants to run a special promotional campaign on one of the product lines over the next month. A market study indicates that such a campaign would increase sales of Flat Glass by R199,000 or sales of Auto Glass by R147,000. The campaign would cost R30,000. Calculate the increased net operating income. (Omit the “R” sign in your response.) |
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|
Flat Glass |
Auto Glass |
Net operating income |
R |
R |
(b) |
Which product line should be chosen? |
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|
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(Click to select)Auto GlassFlat Glass |