Chapter 22: 19DQ (page 1013)
Define and describe cycle efficiency.
The ratio of value-added time and cycle time is known as cycle efficiency.
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Britney Brown, the plant manager of LMN Co.’s Chicago plant, is responsible for all of that plant’s costs other than her own salary. The plant has two operating departments and one service department. The refrigerator and dishwasher operating departments manufacture different products and have their own managers. The office department, which Brown also manages, provides services equally to the two operating departments. A monthly budget is prepared for each operating department and the office department. The company’s responsibility accounting system must assemble information to present budgeted and actual costs in performance reports for each operating department manager and the plant manager. Each performance report includes only those costs that a particular operating department manager can control: raw materials, wages, supplies used, and equipment depreciation. The plant manager is responsible for the department managers’ salaries, utilities, building rent, office salaries other than her own, and other office costs plus all costs controlled by the two operating department managers. The April departmental budgets and actual costs for the two operating departments follow.
| Budget | Actual | |||||
| Refrigerator | Dishwasher | Combined | Refrigerator | Dishwasher | Combined | |
Raw material | \(400,000 | \)200,000 | \(600,000 | \)385,000 | \(202,000 | \)587,000 |
Employee wages | \(170,000 | \)80,000 | \(250,000 | \)174,700 | \(81,500 | \)256,200 |
Dept. manager salary | \(55,000 | \)49,000 | \(104,000 | \)55,000 | \(46,500 | 101,500 |
Supplies used | \)15,000 | \(9,000 | \)24,000 | \(14,000 | \)9,700 | \(23,700 |
Depreciation – equipment | \)53,000 | \(37,000 | \)90,000 | \(53,000 | \)37,000 | \(90,000 |
Utilities | \)30,000 | \(18,000 | \)48,000 | \(34,500 | \)20,700 | \(55,200 |
Building rent | \)63,000 | \(17,000 | \)80,000 | \(65,800 | \)16,500 | \(82,300 |
Office department cost | \)70,500 | \(70,500 | \)141,000 | \(75,000 | \)75,000 | \(150,000 |
Total | \)856,500 | \(480,500 | \)1,337,000 | \(857,000 | \)488,900 | \(1,345,900 |
The office department’s budget and its actual costs for April follow.
Budget | Actual | |
Plant manager salary | \)80,000 | \(85,000 |
Other office salaries | 40,000 | 35,200 |
Other office costs | 21,000 | 29,800 |
Totals | \)141,000 | $150,000 |
Required
1. Prepare responsibility accounting performance reports like those in Exhibit 22.2 that list costs controlled by the following:
a. Manager of the refrigerator department.
b. Manager of the dishwasher department.
c. Manager of the Chicago plant. In each report, include the budgeted and actual costs for the month and show the amount by which each actual cost is over or under the budgeted amount.
Analysis Component
2. Did the plant manager or the operating department managers better manage costs? Explain.
Question: Key figures for Apple and Google follow
| APPLE | ||||||
\((million) | Current year | One year prior | Two-year prior | Current year | One year prior | Two-year prior |
Net income | \)53,394 | \(39,510 | \)37,037 | \(16,348 | \)14,136 | $12,733 |
Income tax | 19,121 | 13,973 | 13,118 | 3,303 | 3,639 | 2,739 |
Interest expense | 733 | 384 | 136 | 104 | 101 | 81 |
Required
Vortex Company operates a retail store with two departments. Information about those departments follows.
Department A | Department B | |
Sales | \(800,000 | \)450,000 |
Cost of goods sold | 497,000 | 291,000 |
Direct expenses | ||
Salaries | 125,000 | 88,000 |
Insurance | 20,000 | 10,000 |
Utilities | 24,000 | 14,000 |
Depreciation | 21,000 | 12,000 |
Maintenance | 7,000 | 5,000 |
The company also incurred the following indirect costs.
Salaries | $36,000 |
Insurance | 6,000 |
Depreciation | 15,000 |
Office expenses | 50,000 |
Indirect costs are allocated as follows: salaries on the basis of sales; insurance and depreciation on the basis of square footage; and office expenses on the basis of number of employees. Additional information about the departments follows.
Department | Square footage | Number of employees |
A | 28,000 | 75 |
B | 12,000 | 50 |
Required
1. For each department, determine the departmental contribution to overhead and the departmental net income.
2. Should Department B be eliminated? Explain
Mervon Company has two operating departments: mixing and bottling. Mixing occupies 22,000 square feet. Bottling occupies 18,000 square feet. Indirect factory costs include maintenance costs of $200,000. If maintenance costs are allocated to operating departments based on square footage occupied, determine the amount of maintenance costs allocated to each operating department.
The following is a partially completed lower section of a departmental expense allocation spreadsheet for Cozy Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five departments. Complete the spreadsheet by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.
Allocation of expenses to departments | |||||||
Particular | Allocation base | Expense account balance | Advertising department | Purchasing department | Books Department | Magazine department | News paper department |
Total departmental expenses | \(698,000 | \)24,000 | \(34,000 | \)425,000 | \(90,000 | \)125,000 | |
Service department expenses | |||||||
Advertising department | Sales | ? | ? | ? | ? | ||
Purchasing department | Purchase order | ? | ? | ? | ? | ||
Total expenses allocated to operating departments | ? | ? | ? | ? | |||
Advertising and purchasing department expenses 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 Order |
Books | \(495,000 | 516 |
Magazines | 198,000 | 360 |
Newspaper | 207,000 | 324 |
Total | \)900,000 | 1,200 |
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