Not For Sale - Cengage Learning

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Chapter Assignments 1
LO 1
LO 1
LO 2
LO 2
LO 2
ExErcisEs: sEt B
Responsibility Centers
E1B. Identify the most appropriate type of responsibility center for each of the organizational
units that follow.
a. A manufacturing department of a large corporation
b. An eye clinic in a community hospital
c. The South American division of a multinational company
d. The food preparation plant of a large restaurant chain
e. The catalog order department of a retailer
Organization Chart
E2B. Happy Industries wants to formalize its management structure by designing an
organization chart. The company has a president, a board of directors, and two vice
presidents. Four discretionary cost centers—Financial Resources, Human Resources,
Information Resources, and Physical Resources—report to one of the vice presidents.
The other vice president has one manufacturing plant with three subassembly areas
reporting to her. Draw the company’s organization chart.
Preparing a Flexible Budget
E3B. Keel Company’s fixed overhead costs for the year are expected to be as follows:
depreciation, $80,000; supervisory salaries, $92,000; property taxes and insurance,
$26,000; and other fixed overhead, $14,500. Total fixed overhead is thus expected to be
$212,500. Variable costs per unit are expected to be as follows: direct materials, $17.00;
direct labor, $9.00; operating supplies, $3.00; indirect labor, $4.00; and other variable
overhead costs, $2.50. Prepare a flexible budget for the following levels of production:
15,000 units, 20,000 units, and 25,000 units. What is the flexible budget formula for
the year ended December 31?
Performance Report for a Cost Center
E4B. Archer, LLC, owns a blueberry processing plant. Last month, the plant generated
the following information: blueberries processed, 50,000 pounds; direct materials,
$50,000; direct labor, $10,000; variable overhead, $12,000; and fixed overhead,
$13,000. There were no beginning or ending inventories. Average daily pounds processed
(25 business days) were 2,000. Average rate of processing was 250 pounds per
hour.
At the beginning of the month, Archer had budgeted costs of blueberries, $45,000;
direct labor, $10,000; variable overhead, $14,000; and fixed overhead, $14,000. The
monthly master budget was based on producing 50,000 pounds of blueberries each
month. This means that the plant had been projected to process 2,000 pounds daily at
the rate of 240 pounds per hour.
Prepare a performance report for the month for the blueberry processing plant.
Include a flexible budget and the computation of variances in your report. Indicate
whether the variances are favorable (F) or unfavorable (U) to the performance of the
plant.
Variable Costing Income Statement
E5B. Green Products, Inc.’s income statement in the traditional reporting format for the
year ended December 31 follows.
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2 Chapter 21: Flexible Budgets and Performance Analysis
LO 2
LO 3
LO 3
Green Products, Inc.
Income Statement
For the Year Ended December 31
Sales $296,400
Cost of goods sold 112,750
Gross margin $183,650
Selling expenses:
Variable (69,820)
Fixed (36,980)
Administrative expenses (27,410)
Operating income $ 49,440
Total fixed manufacturing costs for the year were $16,750. All administrative expenses
are considered to be fixed.
Prepare an income statement for Green Products, Inc., for the year ended
December 31, using the variable costing format.
Traditional and Variable Costing Income Statements
E6B. Interior designers often use the deluxe carpet products of Lux Mills, Inc. The Maricopa
blend is the company’s top product line. In March, Lux produced and sold 174,900
square yards of the Maricopa blend. Factory operating data for the month included variable
cost of goods sold of $2,623,500 and fixed overhead of $346,875. Other expenses
were variable selling expenses, $166,155; fixed selling expenses, $148,665; and fixed
general and administrative expenses, $231,500. Total sales revenue equaled $3,935,250.
All production took place in March, and there was no work in process at month end.
Goods are usually shipped when completed. Prepare the March income statement for
Lux Mills using:
1. the traditional reporting format
2. the variable costing format
Investment Center Performance
E7B. Accounting connEction ▶ Momence Associates is evaluating the performance
of three divisions: Maple, Oaks, and Juniper. Using the data that follow, compute the
return on investment and residual income for each division, compare the divisions’ performance,
and comment on the factors that influenced performance.
Maple Oaks Juniper
Sales $100,000 $100,000 $100,000
Operating income $10,000 $10,000 $20,000
Assets invested $25,000 $12,500 $25,000
Desired ROI 40% 40% 40%
Economic Value Added
E8B. Accounting connEction ▶ Leesburg, LLP, is evaluating the performance of
three divisions: Lake, Sumter, and Poe. Using the data that follow, compute the economic
value added by each division, and comment on each division’s performance.
Lake Sumter Poe
Sales $100,000 $100,000 $100,000
After-tax operating income $10,000 $10,000 $20,000
Total assets $25,000 $12,500 $25,000
Current liabilities $5,000 $5,000 $5,000
Cost of capital 15% 15% 15%
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© Cengage Learning. All rights reserved. No distribution allowed without express authorization.
Chapter Assignments 3
LO 3
LO 4
LO 4
LO 4
Return on Investment and Economic Value Added
E9B. Micanopy Company makes replicas of Indian artifacts. The balance sheet for the
Arrowhead Division showed that the company had invested assets of $300,000 at the
beginning of the year and $500,000 at the end of the year. During the year, the division’s
operating income was $80,000 on sales of $1,200,000.
1. Compute the division’s residual income if the desired ROI is 20 percent.
2. Compute the following performance measures for the division: (a) profit margin,
(b) asset turnover, and (c) return on investment. (Round profit margin percentage
to two decimal places.)
3. Recompute the division’s ROI under each of the following independent assumptions:
a. Sales decrease from $1,200,000 to $1,000,000, causing operating income to fall
from $80,000 to $50,000.
b. Invested assets at the beginning of the year are reduced from $300,000 to
$100,000. (Round to two decimal places.)
c. Operating expenses are reduced, causing operating income to rise from $80,000
to $90,000.
4. Compute the company’s EVA if total corporate assets are $6,000,000, current
liabilities are $800,000, after-tax operating income is $750,000, and the cost of
capital is 12 percent.
Balanced Scorecard
E10B. BusinEss ApplicAtion ▶ Biggs Industries is considering adopting the balanced
scorecard and has compiled the following list of possible performance measures. Select
the balanced scorecard perspective that best matches each performance measure.
Balanced Scorecard Perspective Performance Measure
a. Financial (investor) 1. Residual income
b. Learning and growth (employee) 2. Customer satisfaction rating
c. Internal business processes 3. Employee absentee rate
d. Customer 4. Growth in profits
5. On-time deliveries
6. Manufacturing processing time
Performance Measures
E11B. BusinEss ApplicAtion ▶ Sam Yu wants to measure customer satisfaction within
his region. Link an appropriate performance measure with each balanced scorecard
perspective.
Customer Satisfaction Possible Performance Measures
a. Financial (investor) 1. Number of staff promotions
b. Learning and growth (employee) 2. Number of repeat customers
c. Internal business processes 3. Number of process improvements
d. Customer 4. Percentage sales increase over last period
The Balanced Scorecard
E12B. BusinEss ApplicAtion ▶ Tim’s Bargain Basement sells used goods at very low
prices. Tim has developed the following business objectives:
1. To buy only the inventory that sells
2. To have repeat customers
3. To be profitable and grow
4. To keep employee turnover low
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Not For Sale
4 Chapter 21: Flexible Budgets and Performance Analysis
LO 4
LO 5
LO 5
Tim also developed the following performance measures:
5. Growth in revenues and net income per quarter
6. Average unsold goods at the end of the business day as a percentage of the total
goods purchased that day
7. Number of unemployment claims
8. Percentage of repeat customers
Match each of these objectives and performance measures with the four perspectives
of the balanced scorecard: financial perspective, learning and growth perspective,
internal business processes perspective, and customer perspective.
The Balanced Scorecard
E13B. BusinEss ApplicAtion ▶ Your college’s overall goal is to add value to the communities
it serves. In light of that goal, match each of the stakeholders’ perspectives that
follow with the appropriate objective.
Perspective Objective
a. Financial (investor) 1. Adding value means that the faculty engages in
meaningful teaching and research.
b. Learning and growth (employee) 2. Adding value means that students receive their
degrees in four years.
c. Internal business processes 3. Adding value means that the college has
winning sports teams.
d. Customer 4. Adding value means that fund-raising
campaigns are successful.
Performance Incentives
E14B. BusinEss ApplicAtion ▶ Dynamic Consulting is advising Solid Industries on
the short-term and long-term effectiveness of cash bonuses, awards, profit sharing, and
stock as performance incentives. Prepare a chart identifying the effectiveness of each
incentive as either long-term or short-term or both.
Goal Congruence
E15B. BusinEss ApplicAtion ▶ Serious Toys, Inc., has adopted the balanced scorecard
to motivate its managers to work toward the companywide goal of leading its industry
in innovation. Identify the four stakeholder perspectives that would link to the following
objectives, measures, and targets:
Perspective Objective Measure Target
Profitable new
products
Successful product
introductions
Agile production
processes
Workforce with
cutting-edge skills
New-product RI New-product RI of at least
$100,000
New-product market share Capture 75 percent of
new-product market
within 6 months
Time to market (the time
between a product idea
and its first sales)
Percentage of employees
cross-trained on
work-group tasks
Time to market less than
6 months for 80 percent of
product introductions
90 percent of work group
cross-trained on new tasks
within 10 days
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