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Chapter 22: Q 6BTN (page 1030)

BTN 22-6 Apple and Samsung compete across the world in several markets.

Required

1. Design a three-tier responsibility accounting organizational chart assuming that you have available internal information for both companies. Use Exhibit 22.1 as an example. The goal of this assignment is to design a reporting framework for the companies; numbers are not required. Limit your reporting framework to sales activity only.

2. Explain why it is important to have similar performance reports when comparing performance within a company (and across different companies). Be specific in your response.

Short Answer

Expert verified

1. Three-tier responsibility accountingorganizational chart includes sales executiveswho will report to their divisional sales manager, and a divisional sales manager will report to thecompany’s sales manager.

2. The performance reports must be similar because they simplify the comparison process and provide meaningful information.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of Organizational Chart

The chart that represents an organization’s structure and reflects the relations between various positions and jobs within the organization is known as the organizational chart.

02

Three-tier responsibility accounting organization chart

03

Importance of similarity in the performance report

It is important that performance report must be the same when it is compared with any other department or company because comparing the same item proves to be easy and also provides meaningful information.

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Most popular questions from this chapter

The following information is available for Zetrov Company: a. The cash budget for March shows an ending bank loan of \(10,000 and an ending cash balance of \)50,000. b. The sales budget for March indicates sales of \(140,000. Accounts receivable are expected to be 70% of the current-month sales. c. The merchandise purchases budget indicates that \)89,000 in merchandise will be purchased on account in March. Purchases on account are paid 100% in the month following the purchase. Ending inventory for March is predicted to be 600 units at a cost of \(35 each. d. The budgeted income statement for March shows net income of \)48,000. Depreciation expense of \(1,000 and \)26,000 in income tax expense were used in computing net income for March. Accrued taxes will be paid in April. e. The balance sheet for February shows equipment of \(84,000 with accumulated depreciation of \)46,000, common stock of \(25,000, and ending retained earnings of \)8,000. There are no changes budgeted in the Equipment or Common Stock accounts. Prepare a budgeted balance sheet at the end of March.

Sherman Co. began operations on January 1, 2016, and completed several transactions during 2016 and 2017 that involved sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows.

2016

a. Sold \(685,350 of merchandise on credit (that had cost \)500,000), terms n∕30.

b. Received \(482,300 cash in payment of accounts receivable.

c. Wrote off \)9,350 of uncollectible accounts receivable.

d. In adjusting the accounts on December 31, the company estimated that 1% of accounts receivable will be uncollectible.

2017

e. Sold \(870,220 of merchandise on credit (that had cost \)650,000), terms n∕30.

f. Received \(990,800 cash in payment of accounts receivable.

g. Wrote off \)11,090 of uncollectible accounts receivable.

h. In adjusting the accounts on December 31, the company estimated that 1% of accounts receivable will be uncollectible.

Required

Prepare journal entries to record Sherman’s 2016 and 2017 summarized transactions and its year-end adjusting entry to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable. Round amounts to the nearest dollar.)

Bonanza Entertainment began operations in January 2017 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.

BONANZA ENTERTAINMENT

Departmental Income Statements

For Year Ended December 31, 2017

Particular

Movies

Video Games

Combined

Sales

\(600,000

\)200,000

\(800,000

Cost of goods sold

420,000

154,000

574,000

Gross profit

180,000

46,000

226,000

Direct expenses

Sales salaries

37,000

15,000

52,000

Advertising

12,500

6,000

18,500

Store supplies used

4,000

1,000

5,000

Depreciation – equipment

4,500

3,000

7,500

Total direct expenses

58,000

25,000

83,000

Allocated expenses

Rent expenses

41,000

9,000

50,000

Utilities expenses

7,380

1,620

9,000

Share of office department expenses

56,250

18,750

75,000

Total allocated expenses

104,630

29,370

134,000

Total expenses

162,630

54,370

217,000

Net income

\)17,370

(\(8,370)

\)9,000

The company plans to open a third department in January 2018 that will sell compact discs. Management predicts that the new department will generate \(300,000 in sales with a 35% gross profit margin and will require the following direct expenses: sales salaries, \)18,000; advertising, \(10,000; store supplies, \)2,000; and equipment depreciation, \(1,200. The company will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new compact disc department will fill one-fourth of the space presently used by the movie department and one-third of the space used by the video game department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the compact disc department to increase total office department expenses by \)10,000. Since the compact disc department will bring new customers into the store, management expects sales in both the movie and video game departments to increase by 8%. No changes for those departments’ gross profit percents or for their direct expenses are expected except for store supplies used, which will increase in proportion to sales.

Required

Prepare departmental income statements that show the company’s predicted results of operations for calendar-year 2018 for the three operating (selling) departments and their combined totals. (Round percents to the nearest one-tenth and dollar amounts to the nearest whole dollar.)

Question: In each blank next to the following terms, place the identifying letter of its best description.

1. Indirect expenses

A. Costs are not within a manager’s control or influence.

2. Controllable cost

B. Costs that can be readily traced to a department.

3. Direct expenses

C. Costs that a manager has the ability to affect.

4. Uncontrollable cost

D. Costs incurred for the joint benefit of more than one department.

Harmon’s has several departments that occupy all floors of a two-story building that includes a basement floor. Harmon rented this building under a long-term lease negotiated when rental rates were low. The departmental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for the current period follow.

Building rent

\(400,000

Lighting expenses

25,000

Cleaning expenses

40,000

Total occupancy cost

\)465,000

The building has 7,500 square feet on each of the upper two floors but only 5,000 square feet in the basement. In prior periods, the accounting manager merely divided the \(465,000 occupancy cost by 20,000 square feet to find an average cost of \)23.25 per square foot and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupies.

Jordan Style manages a department that occupies 2,000 square feet of basement floor space. In discussing the departmental reports with other managers, she questions whether using the same rate per square foot for all departments makes sense because different floor space has different values. Style checked a recent real estate report of average local rental costs for similar space that shows first-floor space worth \(40 per square foot, second-floor space worth \)20 per square foot, and basement space worth $10 per square foot (excluding costs for lighting and cleaning).

Required

1. Allocate occupancy costs to Style’s department using the current allocation method.

2. Allocate the building rent cost to Style’s department in proportion to the relative market value of the floor space. Allocate to Style’s department the lighting and cleaning costs in proportion to the square feet occupied (ignoring floor space market values). Then, compute the total occupancy cost allocated to Style’s department.

Analysis Component

3. Which allocation method would you prefer if you were a manager of a basement department?
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