Exam 11: Reporting for Control

Financial data for Bingham Company for last year appear below: Bingham Company Statements of Financial Position Beginning Balance Ending Balance Assets: Cash \ 135,000 \ 266,000 Accounts receivable 225,000 475,000 Inventory 314,000 394,000 Plant and equipment (net) 940,000 860,000 Investment in Carr Company 104,000 101,000 Land (undeveloped) Total assets \ 1,916,000 \ 2,161,000 Liabilities and owners' equity: Accounts payable \ 88,000 \ 119,000 Long-term debt 585,000 665,000 Owners' equity 1,243,000 1,377,000 Total liabilities and owners' equity \ 1,916,000 \ 2,161,000 Bingham Company Income Statement Sales \ 4,644,000 Less operating expenses Net operating income 353,000 Less interest and taxes: Interest expense \ 90,000 Tax expense Operating Income \ 134,000 The "Investment in Carr Company" on the statement of financial position represents an investment in the stock of another company. Required: a)Compute the company's margin,turnover,and return on investment for last year. b)The Board of Directors of Beaker Company have set a minimum required return of 15%.What was the company's residual income last year?

All other things equal,a company's return on investment is affected by a change in which of the following? Turnover Margin A) Yes Yes B) No Yes C) No No D) Yes No

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 external failure cost appearing on the quality cost report?

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 direct method of allocation,what would be the predetermined overhead rate for the year in the Assembly Department? (Round your final answer to the nearest two decimal places)

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. -)What is the maximum price per wheel that Walsh should be willing to pay Vega?

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 prevention cost appearing on the quality cost report?

Rigoletto Company's quality cost report is to be based on the following data: Lost sales due to poor quality \ 24,000 Test and inspection of incoming materials \ 94,000 Rework labour and overhead \ 55,000 Test and inspection of in-process goods \ 32,000 Product recalls \ 47,000 Quality data gathering, analysis, and reporting \ 15,000 Disposal of defective products \ 88,000 Maintenance of test equipment \ 58,000 Quality engineering \ 98,000 Required: Prepare a quality cost report in good form with separate sections for prevention costs,appraisal costs,internal failure costs,and external failure costs.

Residual income is the operating income that an investment centre earns above the minimum required return on the investment in operating assets.

$\text { Eacker Company's quality cost report is to be based on the following data: }$ 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 internal failure cost appearing on the quality cost report?

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 again that the company uses the step-down method.What would be the total amount of cost allocated from the two Service Departments to the Operating Departments for the year?

Granting subordinates autonomy and profit responsibility almost invariably also grants them the right to make mistakes.

Which of the following is a correct definition of operating income?

Which of the following is NOT an operating asset?

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 Vega can sell 9,000 wheels each month to outside consumers,so transfers to the Walsh Division cut into outside sales.What should be the lowest acceptable transfer price from the perspective of the Vega Division?

Parker Company has two service departments-cafeteria and engineering-and two operating departments.The number of employees in each department is given below: Cafeteria 10 Engineering 40 Operating Department 1 500 Operating Department 2 200 The costs of the Cafeteria are allocated to other departments on the basis of the number of employees in the departments.If these costs are budgeted at $69,375,what would be the amount of cost allocated to Engineering under the direct method?

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below: Selling Price to Outside Customers \ 75 Variable Cost per Unit \ 50 Total Fixed Costs \ 400,000 Capacity in Units 25,000 Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X can already sell all of the units it can produce on the outside market.What should be the lowest acceptable transfer price from the perspective of Division X?

When an intermediate market price for a transferred item exists,it represents a lower limit on the charge that should be made on transfers between divisions.

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 again that the company uses the step-down method.What would be the total amount of cost allocated from the two Service Departments to the Operating Departments for the year?

The Northern Division of the Gordon Company reported the following data for last year: Sales \ 900,000 Shareholders' Equity \ 320,000 Operating Expenses \ 700,000 Average Operating Assets \ 500,000 Interest Expense \ 50,000 Tax Expense \ 60,000 Minimum Required Rate of Return 15\% -What was the return on investment last year for the Northern Division?

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