Exam 11: Reporting for Control

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 prevention cost appearing on the quality cost report?

The IT Corporation produces and markets two types of electronic calculators: Model 11 and Model 12.The following data were gathered on activities last month: Model11 Model 12 Sales in units 5,000 3,000 Selling price per unit \ 50 \ 100 Variable production costs per unit \ 10 \ 26 Traceable fixed production costs \ 100,000 \ 150,000 Variable selling expenses per unit \ 5 \ 6 Traceable fixed selling expenses \ 5,000 \ 7,500 Allocated division administrative expenses \ 50,000 \ 60,000 Required: a.Prepare a segmented income statement in the contribution format for last month,showing both "Amount" and "Percent" columns for the company as a whole and for each model. b.Why might it be very difficult to calculate separate break-even sales for each model? 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 models. 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 company's administrative expenses are actually traceable.Allocate the total break-even sales between the two models. e.How reasonable are the total break-even sales numbers calculated in parts (c)and (d)given the actual results for last month?

Ieso Company has two stores: J and K. During November, Ieso Company reported operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses were $60,000 in Store J, and $40,000 in Store K. -What was the segment margin ratio in Store J?

Canon Company has two sales areas: North and South. During last year, the contribution margin in the North was $50,000, or 20% of sales. The segment margin in the South was $15,000, or 8% of sales. Traceable fixed costs were $15,000 in the North and $10,000 in the South. During last year, the company reported total operating income of $26,000. -What were the variable costs for the South area for the year?

Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year and regularly sells 60,000 each year on the outside market.The regular sales price is $100 per wheel set,and the variable production cost per unit is $65.Division Q of Turbo Corporation currently buys 30,000 wheel sets (of the kind made by Division P)yearly from an outside supplier at a price of $90 per wheel set.Division Q would like to buy the 30,000 wheel sets it needs annually from Division P at $87 per wheel set.What would be the change in annual operating income for the company as a whole,compared to what it is currently?

Harui Company's quality cost report is to be based on the following data: Test and inspection of in-process goods \ 32,000 Net cost and spoilage \ 45,000 Quality circles \ 33,000 Downtime caused by quality problems \ 28,000 Final product testing and inspection \ 78,000 Rework labour and overhead \ 48,000 Quality training \ 93,000 Returns arising from quality problems \ 92,000 Warranty repair's and replacements \ 67,000 Required: a)Prepare a quality cost report in good form with separate sections for prevention costs,appraisal costs,internal failure costs,and external failure costs. b)If Harui's efforts to ensure quality conformance are working,how would you expect the Quality Cost Report next year to compare with this one?

An increase in appraisal costs will usually result in an increase in which of the following?

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 the transfer of posts to the Lamp Division will cut into sales to outside customers by 15,000 units.Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at $1.45 each.If the Lamp Division chooses to buy all of its posts from the outside supplier instead of the Post Division,what will be the change in operating income for the company as a whole?

Grant Company has several service departments that provide services to each other as well as to operating departments within the company.Which method would be least accurate in allocating the company's service department costs?

The Holmes Division recorded operating data as follows for the past year: Sales \ 200,000 Operating Income \ 25,000 Average Operating Assets \ 100,000 Shareholders' Equity \ 80,000 Residual Income \ 13,000 -For the past year,what was the margin?

The following selected data pertain to the belt division of Allen Corp. for last year: Sales \ 500,000 Average Operating Assets \ 200,000 Operating Income \ 80,000 Turnover 2.5 Minimum Required Return 20\% -What was the residual income?

Russet Company has two Service Departments and two Producing Departments. Budgeted costs and budgeted activity in the various departments for the most recent year are presented below: Custodial Services Cafeteria Cutting Department Assembly Department Overhead Costs \ 252,000 \ 140,000 \ 600,000 \ 900,000 Square Metres of Space Occupied 1,000 2,000 8,000 10,000 Number of Employees 20 30 150 200 Machine Hour 40,000 60,000 Service Department costs are allocated to Producing Departments with the costs of Custodial Services allocated first on the basis of square metres of space occupied. The costs of the Cafeteria are allocated on the basis of number of employees. Predetermined overhead rates in the Cutting and Assembly departments are based on machine hours. Round all calculations to the nearest dollar. - Under the step-down method of allocation,what would be the amount of Custodial Services cost allocated to the Assembly Department?

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 direct method of allocating Service Department costs to Operating Departments.How much Building & Grounds cost would be allocated to Operating Department A?

Faust Company's quality cost report is to be based on the following data: Quality engineering \ 68,000 Quality circles \ 35,000 Supervision of testing and inspection activities \ 72,000 Net cost of scrap \ 76,000 Test and inspection of in-process goods \ 6,000 Liability arising from defective products \ 3,000 Warranty repairs and replacements \ 56,000 Debugging software errors \ 68,000 Rework labour and overhead \ 19,000 - What will be the total appraisal cost appearing on the quality cost report?

Financial Services 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 \ 64,000 \ 200,000 \ 650,000 \ 800,000 Square Metres Occupied 1,000 3,000 12,000 18,000 Number of Employees 10 5 45 55 Professional 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 professional 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 B?

Thais Company's quality cost report is to be based on the following data: Liability arising from defective products \ 65,000 Lost sales due to poor quality \ 61,000 Test and inspection of in-process goods \ 57,000 Quality circles \ 27,000 Net cost of spoilage \ 103,000 Debugging software errors \ 39,000 Rework labour and overhead \ 105,000 Final product testing and inspection \ 42,000 Statistical process control activities \ 71,000 - What will be the total external failure cost appearing on the quality cost report?

Which of the following would be classified as an appraisal cost on a quality cost report?

Service departments,such as accounting,finance,general administration,legal,and personnel,are usually considered to be cost centres.In addition,manufacturing facilities are often considered to be cost centres.

Falstaff Company's quality cost report is to be based on the following data: Quality data gathering, analysis, and reporting \ 49,000 Supervision of testing and inspection activities \ 46,000 Liability arising from defective products \ 35,000 Technical support provided to suppliers \ 50,000 Disposal of defective products \ 75,000 Amortization of test equipment \ 56,000 Downtime caused by quality problems \ 99,000 Test and inspection of in-process goods \ 70,000 Cost of field servicing and handling complaints \ 54,000 Required: Prepare a quality cost report in good form with separate sections for prevention costs,appraisal costs,internal failure costs,and external failure costs.

The following selected data pertain to the belt division of Allen Corp. for last year: Sales \ 500,000 Average Operating Assets \ 200,000 Operating Income \ 80,000 Turnover 2.5 Minimum Required Return 20\% -What was the return on investment?