ACC 212 Homework 7

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ACC 212

Exercise 24-1 Departmental expense allocations LO P2

Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

 

Indirect Expense   Cost Allocation Base
  Supervision $ 83,600  Number of employees
  Utilities   61,000  Square feet occupied
  Insurance   28,000  Value of assets in use
 
 
  Total $ 172,600  
 
 

 

Departmental data for the company’s recent reporting period follow.

 

 

Department Employees Square Feet Asset Values
  Materials   22     21,000   $ 17,750  
  Personnel   11     5,250     2,130  
  Manufacturing   44     68,250     36,210  
  Packaging   33     10,500     14,910  
   
   
 
 
  Total   110     105,000   $ 71,000  
   
   
 
 

Exercise 24-3 Departmental contribution report LO P3

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its electric guitar department since it has a net loss. The company classifies advertising, rent, and utilities expenses as indirect.

 

 

WHOLESALE GUITARS
Departmental Income Statements
For Year Ended December 31, 2013
  Acoustic   Electric  
  Sales $ 101,700   $ 84,200    
  Cost of goods sold   45,475     47,350    
 
 
 
  Gross profit   56,225     36,850    
  Operating expenses              
     Advertising expense   5,015     4,260    
     Depreciation expense-equipment   10,140     8,530    
     Salaries expense   19,300     17,900    
     Supplies expense   1,990     1,730    
     Rent expense   7,095     6,010    
     Utilities expense   2,995     2,590    
 
 
 
  Total operating expenses   46,535     41,020    
 
 
 
  Net income (loss) $ 9,690   $ (4,170 )  
 
 
 

Exercise 24-4 Departmental expense allocation spreadsheet LO P2

Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.

 

  Department Direct Expenses Square Feet
  Advertising $ 17,000     1,089  
  Administrative   18,300     1,152  
  Shoes   101,500     6,336  
  Clothing   11,800     4,224  

 

The advertising department developed and distributed 120 advertisements during the year. Of these, 76 promoted shoes and 44 promoted clothing. The store sold $350,000 of merchandise during the year. Of this amount, $223,000 is from the shoes department, and $127,000 is from the clothing department. The utilities expense of $64,000 is an indirect expense to all departments.

 

 

Complete the departmental expense allocation spreadsheet for Marathon Running Shop. Assign (1) direct expenses to each of the four departments, (2) the $64,000 of utilities expense to the four departments on the basis of floor space occupied, (3) the advertising department’s expenses to the two operating departments on the basis of the number of ads placed that promoted a department’s products, and (4) the administrative department’s expenses to the two operating departments based on the amount of sales.

 

Exercise 24-5 Service department expenses allocated to operating departments LO P2

Advertising and purchasing department expenses of Cozy Bookstore are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.

 

 

  Department Sales Purchase Orders
  Books $ 180,000   984  
  Magazines   108,000   600  
  Newspapers   72,000   816  
 
 
 
  Total $ 360,000   2,400  
 
 
 

Exercise 24-7 Investment center analysis LO A1

You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $65,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $42,000.

 

Compute the return on investment for each Fast & Great Burgers alternative.

 

 

Exercise 24-8 Computing return on assets and residual income; investing decision LO A1

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

 

 

Investment Center   Sales   Net
Income		 Average
Invested Assets
  Electronics $ 10,900,000 $ 617,500 $ 3,250,000  
  Sporting goods   8,900,000   912,000   5,700,000  

 

Exercise 24-9 Computing margin and turnover; department efficiency LO A2

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

 

 

Investment Center   Sales   Net
Income		 Average
Invested Assets
  Electronics $ 9,000,000 $ 670,000 $ 3,750,000  
  Sporting goods   9,350,000   970,000   5,500,000  

 

 

Exercise 24-11A Determining transfer prices LO C2

 

The Trailer department of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $91 each. Each trailer incurs $35 of variable manufacturing costs. The Trailer department has capacity for 22,000 trailers per year, and incurs fixed costs of $550,000 per year.

 

Exercise 24-12B Joint real estate costs assigned LO C3

 

Heart & Home Properties is developing a subdivision that includes 340 home lots. The 240 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 100 lots in the Hilltop section offer unobstructed views. The expected selling price for each Canyon lot is $57,000 and for each Hilltop lot is $92,000. The developer acquired the land for $2,400,000 and spent another $2,100,000 on street and utilities improvements.

 

Acct 212 Course Project

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