Exam 11: Reporting for Control

The James Company has four departments with data as follows: Service Departments Operating Departments Cafeteria Maintenance Milling Finishing Budgeted Costs \ 12,000 \ 10,000 \ 42,000 \ 38,000 Number of Employees 12 10 84 66 Labour Hours 1,500 1,250 5,250 4,750 - Suppose Cafeteria Department costs are allocated on the basis of number of employees and that the step-down method is used with costs of the Cafeteria Department allocated first.What would be the amount of cost allocated from the Cafeteria Department to Maintenance Department?

Division X of Charter Corporation makes and sells a single product that is used by manufacturers of forklift trucks.Presently,it sells 12,000 units per year to outside customers at $24 per unit.The annual capacity is 20,000 units,and the variable cost to make each unit is $16.Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use in its products.There would be no cost savings from transferring the units within the company rather than selling them on the outside market.What should be the lowest acceptable transfer price from the perspective of Division X?

An increase in appraisal costs will usually result in an increase in internal failure costs.

To minimize its total quality costs,a company should usually try to redistribute its quality costs more toward prevention and appraisal.

The Millard Division's operating data for the past two years are provided below: Year 1 Year 2 Return on Investment 12\% 36\% Shareholders' Equity \ 800,000 \ 500,000 Operating Income ? \ 360,000 Turnover ? 3 Margin ? ? Sales \ 3,200,000 ? Millard Division's margin in Year 2 was 150\% of the margin in Year 1. -What was the turnover for Year 1?

The Post Division of the M.T. Woodhead Company produces basic posts that can be sold t outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from the Post Division at $\$ 1.50$ each. The following data are available for last year's activities of the Post Division: Capacity in Units 300,000 posts Selling Price per Post to Outside Customers \ 1.75 Variable Costs per Post \ 0.90 Fixed Costs, Total \ 150,000 $\text { The total fixed costs would be the same for all the alternatives considered below. }$ - Suppose there is ample capacity so that transfers of the posts to the Lamp Division do not cut into sales to outside customers.What is the lowest transfer price that would not reduce the operating income of the Post Division?

Fabri Company's quality cost report is to be based on the following data: Liability arising from defective products \ 56,000 Lost sales due to poor quality \ 51,000 Test and inspection of in-process goods \ 47,000 Quality circles \ 17,000 Net cost of spoilage \ 93,000 Debugging software errors \ 29,000 Rework labour and overhead \ 95,000 Final product testing and inspection \ 32,000 Statistical process control activities \ 61,000 - What will be the total external failure cost appearing on the quality cost report?

External failure costs result when a defective product is shipped to a customer.

Consider the following three statements: I.A profit centre has control over both cost and revenue. II.An investment centre has control over invested funds,but not over costs and revenue. III.A cost centre has no control over sales. Which statement(s)is/are correct?

The following data have been extracted from the year-end reports of two companies: Company X and Company Y: Company X Company Y Sales \ 2,700,00 ? Operating Income \ 256,000 ? Average Operating Assets ? \ 1,725,000 Margin ? 8.0\% Turnover ? 2.0 Return on Investment 16\% ? Required: Fill in the missing data on the above table.

All other things being equal,which of the following is a consequence of an increase in a division's traceable fixed expenses?

What allocation method recognizes that service departments often provide each other with interdepartmental services,and it is therefore considered to be the most accurate method for allocating service department costs to operating departments?

Faast Company's quality cost report is to be based on the following data: Quality engineering \ 86,000 Quality circles \ 53,000 Supervision of testing and inspection activities \ 92,000 Net cost of scrap \ 96,000 Test and inspection of in-process goods \ 16,000 Liability arising from defective products \ 13,000 Warranty repairs and replacements \ 62,000 Debugging software errors \ 86,000 Rework labour and overhead \ 29,000 - What will be the total appraisal cost appearing on the quality cost report?

Which of the following statements about reciprocal service department costs is correct?

Division A makes a part with the following characteristics: Production Capacity in Units 15,000 units Selling Price to Outside Customers \ 25 Variable Cost per Unit \ 18 Total Fixed Costs \ 60,000 Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of \$24 each. - Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price.If Division A sells the parts to Division B at $24 per unit (Division B's outside price),what will be the effect on the operating income of company as a whole?

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,what is the lowest acceptable transfer price as far as the selling division is concerned?

Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment.

$\text { Estes Company has assembled the following data for its divisions for the past year: }$ Division A Division B Average Operating Assets \ 500,000 ? Sales ? \ 520,000 Operating Income \ 100,000 \ 20,300 Turnover 1.25 4 Margin ? 3.9\% Minimum Required Rate of Return 14\% ? Residual Income ? \ 6,000 -What was Division A's residual income?

Eagan Company's quality cost report is to be based on the following data: Quality training \ 75,000 Lost sales due to poor quality \ 94,000 Test and inspection of in-process goods \ 37,000 Test and inspection of incoming materials \ 65,000 Disposal of defective products \ 86,000 Quality data gathering, analysis, and reporting \ 92,000 Net cost of spoilage \ 27,000 Supervision of testing and inspection activities \ 10,000 Product recalls \ 38,000 - What will be the total external failure cost appearing on the quality cost report?

$\text { Eacker Company's quality cost report is to be based on the following data: }$ Quality engineering \ 72,000 Net cost of spoilage \ 70,000 Re-entering data because of keying errors \ 88,000 Test and inspection of incoming materials \ 68,000 Test and inspection of in-process goods \ 97,000 Technical support provided to suppliers \ 83,000 Maintenance of test equipment \ 31,000 Product recalls \ 73,000 Warranty repairs and replacements \ 46,000 - What will be the total appraisal cost appearing on the quality cost report?