Exam 11: Reporting for Control

The Winter Products Division of American Sports Corporation produces and markets two products for use in the snow: Sleds and Saucers.The following data were gathered on activities last month: Sleds Saucers Sales in units 2,000 9,000 Selling price per unit \ 50 \ 20 Variable fixed production costs \ 20 \ 5 Traceable fixed production costs \ 12,000 \ 33,000 Variable selling expensesper unit \ 2 \ 1 Traceable fixed selling expenses \ 2,000 \ 3,000 Allocated division administrative expenses \ 40,000 \ 72,000 Required: a.Prepare a segmented income statement in the contribution format for last month,showing both "Amount" and "Percent" columns for the division as a whole and for each product. b.Why might it be very difficult to calculate separate break-even sales for each product? c.Refer to the original data and,if necessary,the results of the segmented income statement prepared in part (a)above.Calculate the total break-even sales (in both units AND dollars)for last month,assuming that none of the fixed production costs and fixed selling expenses is traceable.Allocate the total break-even sales between the two products. d.Again,refer to the original data and,if necessary,the results of the segmented income statement prepared in part (a)above.Calculate the total break-even sales (in both units AND dollars)for last month,assuming that the "allocated" amounts of the division's administrative expenses are fixed and actually traceable.Allocate the total break-even sales between the two products. e.How reasonable are the total break-even sales numbers calculated in parts (c)and (d)given the actual results for last month?

The following information is available on Company A: Sales \ 900,000 Operating Income \ 36,000 Shareholders' Equity \ 100,000 Average Operating Assets \ 180,000 Minimum Required Rate of Return 15\% -What is Company A's return on investment (ROI)?

$\text { Estes Company has assembled the following data for its divisions for the past year: }$ 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 were Division A's sales?

Westmore Company has two Service Departments and two Operating Departments. Budgeted costs and other data relating to these departments are presented below: Building \& Grounds Personnel Operating A Operating B Departmental costs \ 54,000 \ 200,000 \ 650,000 \ 800,000 Square Metres Occupied 1,000 3,000 12,000 15,000 Number of Employees 10 5 45 55 Direct Labour Hours 76,000 92,000 The costs of Building & Grounds are allocated first on the basis of square metres of space occupied. Personnel costs are allocated on the basis of number of employees. The departmental costs for the Operating Departments are overhead costs. Predetermined overhead rates in the Operating Departments are calculated on the basis of direct labour hours. - Assume that the company uses the step-down method of allocating Service Department costs to Operating Departments,and Building and Grounds costs are allocated first.How much Personnel Department cost would be allocated to Operating Department A?

Cable Company had the following results for the year just ended: Operating Income \ 2,500 Turnover 4 Return on Investment 20\% What were Cable Company's average operating assets during the year?

The Vega Division of Ace Company makes wheels that can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4,000 of its wheels from the Vega Division for $\$ 42$ each. The following data are available from last month's operations for the Vega Division: Capacity 12,000 wheels Selling Price per Wheel to Outside Customers \ 45 Variable Costs per Wheel Sold to Outside Customers \ 30 If the Vega Division sells wheels to the Walsh Division, Vega can avoid \$2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for $\$ 41$ each. - Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not cut into its sales to outside customers.What should be the lowest acceptable transfer price from the perspective of the Vega Division?

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 were the average operating assets for Year 2?

Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units.

( Larinore Corporation has a Castings Division that does casting work of various types.The company's Machine Products Division has asked the Castings Division to provide it with 20,000 special castings each year on a continuing basis.The special castings would require $10 per unit in variable production costs.The Machine Products Division has a bid from an outside supplier of $29 per unit for the castings. In order to have time and space to produce the new castings,the Castings Division would have to cut back production of another casting: the RB4,which it presently is producing.The RB4 sells for $30 per unit,and requires $12 per unit in variable production costs.Boxing and shipping costs of the RB4 are $4 per unit.Boxing and shipping costs for the new special casting would be only $1 per unit.The company is now producing and selling 100,000 units of the RB4 each year.Production and sales of this casting would drop by 20% if the new casting is produced. Required: a)What is the range of transfer prices within which both the divisions' profits would increase as a result of agreeing to the transfer of 20,000 castings per year from the Castings Division to the Machine Products Division? b)Is it in the best interests of Larinore Corporation for this transfer to take place? Explain.

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: Unit Selling Price \ 50 Unit Variable Cost \ 30 Total Fixed Costs \ 200,000 Average Operating Assets \ 750,000 Minimum Required Rate of Return 12\% -If Axle sells 15,000 units per year,what would be the residual income?

For the past year,Largo Company recorded sales of $750,000 and average operating assets of $375,000.What margin did Largo Company need to earn to achieve an ROI of 15%?

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 Maintenance Department costs are allocated on the basis of labour hours.What would be the amount of cost allocated to Milling from Maintenance under the direct method?

Flinders Company has two Service Departments-Factory Administration and Maintenance-and two Operating Departments.Selected information relating to these departments is given below:

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 internal failure cost appearing on the quality cost report?

Which of the following is the main assumption that is made about managers in general in support of decentralization?

$\text { Harstin Corporation has provided the following data for the past year: }$ Sales \ 625,000 Gross Margin \ 70,000 Operating Income \ 50,000 Shareholders' Equity \ 90,000 Average Operating Assets \ 250,000 Residual Income \ 20,000 -What was the minimum required rate of return for the past year?

Since the sales figure is neutral in the return on investment (ROI)formula,ROI = Margin * Turnover,a change in total sales will NOT affect ROI.

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 prevention cost appearing on the quality cost report?

Prevention costs and appraisal costs are incurred in an effort to keep poor quality of conformance from occurring.

The return on investment can ordinarily be improved by either increasing sales,reducing expenses,or reducing operating assets.