Exam 24: Cost Allocation and Responsibility Accounting

The balanced scorecard is a performance evaluation system that requires management to consider financial measures of performance,but not nonfinancial measures.

A profit center performance report includes both revenues and expenses.

GrowHealthy,a manufacturer of vegetarian food options had the following results from its Subunit A: Flexible Budget Actual Flexible Variance \% of Variance Subunit A Results Budget (F or U) (F or U) Net Sales Revenue \ 587,000 \ 562,000 Variable Expenses Contribution Margin 215,000 200,000 Traceable Fixed Expenses Divisional Segment Margin \ 165,000 \ 163,000 Requirements: 1.Complete the performance evaluation report for this subunit (round to two decimal places). 2.Based on the data presented and your knowledge of the company,what type of responsibility center is this subunit? 3.Which items should be investigated if management's decision criteria is to investigate all variances equal to or exceeding $9,000 and 10% (both criteria must be met)? 4.Is it possible that the variances are due to a higher-than-expected sales volume? 5.Which balanced scorecard perspective is being addressed by this performance report? Is it a lead or lag indicator?

Flexible budgets use budgeted (or standard)costs at the actual level of activity.

Anderson Construction Materials Company has a sales office that sells concrete culvert pipes to property developers.The sales office is a revenue center and prepares a monthly responsibility report.The following information is provided.Complete the responsibility report. Anderson Construction Materials Company Revenue Center Responsibility Report Product Type Actual Sales Revenue Flexible Budget Variance Flexible Budget Sales Volume Variance Static Budget 40 inch \ 31,700 \ 30,500 \ 40,800 36 inch 40,150 42,200 33,000 32 inch 19,100 20,000 28,450 Total

Compass Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy.The standard bearings require $200 of direct materials per unit (per crate),and the heavy bearings require $245 of direct materials per unit.The operation is mechanized,and there is no direct labor.Previously Compass used a single plantwide allocation rate for manufacturing overhead,which was $1.55 per machine hour.Based on the single rate,gross profit was as follows: Per unit Standard Heavy Direct materials cost \ 200.00 \ 245.00 Manufacturing overhead cost Total manufacturing cost \ 324.00 \ 338.00 Sales price per unit Gros profit per unit \ 26.00 \3 2.00 Although the data showed that the heavy bearings were more profitable than the standard bearings,the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings,and that this factor was not adequately reflected in the single plantwide allocation rate.He suspected that it was distorting the profit data.He suggested adopting an activity-based costing approach. Working together,the engineers and accountants identified the following three manufacturing activities and broke down the annual overhead costs as shown below: Activities: Estimated Cost Metal fabrication \ 420,000 Machine processing 152,000 Packaging Total overhead cost \ 589,000 Engineers believed that metal fabrication costs should be allocated by weight and estimated that the plant processed 12,000 kilos of metal per year.Machine processing costs were correlated to machine hours,and the engineers estimated a total of 380,000 machine hours for the year.Packaging costs were the same for both types of products,and so they could be allocated simply by the number of units produced.The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year.Additional data on a per unit basis were as given below: Standard Heavy Kilos per unit 2.00 4.00 Machine hours per unit 80.00 60.00 Using the data above,calculate the predetermined overhead allocation rates using activity-based costing.Then,following the activity-based costing methodology,calculate the production cost and gross profit for one unit of standard bearings.(Round your intermediate calculations to two decimal places.)

One of the advantages of decentralization is that it allows top management to concentrate on long-term strategic planning.

Direct material costs and direct labor costs cannot be easily traced to products.Therefore,they are allocated to products.

For a pharmaceutical company,the most suitable base for allocating research and development costs to the finished products would be the ________.

Residual income indicates how ________.

Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

Which of the following statements is TRUE of an activity-based costing system?

Goal congruence is the practice of comparing the company's achievements against the best practices in the industry.

State the strategy for each of the perspectives of the balanced scorecard. Balanced scorecard perspective Strategy Financial Customer Internal business Learning and growth

The transfer price is the transaction amount of one unit of goods when the transaction occurs between the company and its customers.

The following is divisional information for Randolph Enterprises: East Division West Division Operating income \ 250,000 \ 200,000 Net sales 2,225,000 1,575,000 Total assets at Jan. 1 1,500,000 840,000 Total assets at Dec .31 1,200,000 1,000,000 The target rate of return is 12% for the East Division and is 10% for the West Division. Compute the return on investment for each division.(Round to one decimal place.)

The first step in developing an activity-based costing system is to identify the activities that will be used to allocate the manufacturing overhead costs.