Chapter 22: Q4-6PSB (page 986)
Refer to the data and information in Problem 4-5B.
Required
Prepare and complete the entire 10-column worksheet for Foster Products Company. Follow the structure of Exhibit 4B.1 in Appendix 4B.
Answer
The business entity generates a net income of$24,000.
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Arctica manufactures snowmobiles and ATVs. These products are made in different departments, and each department has its own manager. Each responsibility performance report only includes those costs that the particular department manager can control: raw materials, wages, supplies used, and equipment depreciation. Using the data below, prepare a responsibility accounting report for the snowmobile department.
Budget | Actual | |||||
Snowmobile | ATV | Combined | Snowmobile | ATV | Combined | |
Raw material | \(19,500 | \)27,500 | \(47,000 | \)19,420 | \(28,820 | \)48,240 |
Employee wages | 10,400 | 20,500 | 30,900 | 10,660 | 21,240 | 31,900 |
Dept. manager salary | 4,300 | 5,200 | 9,500 | 4,400 | 4,400 | 8,800 |
Supplies used | 3,300 | 900 | 4,200 | 3,170 | 920 | 4,090 |
Depreciation – equipment | 6,000 | 12,500 | 18,500 | 6,000 | 12,500 | 18,500 |
Utilities | 360 | 540 | 900 | 330 | 500 | 830 |
Rent | 5,700 | 6,300 | 12,000 | 5,300 | 6,300 | 11,600 |
Totals | \(49,560 | \)73,440 | \(123,000 | \)49,280 | \(74,680 | \)123,960 |
Billie Whitehorse, the plant manager of Travel Free’s Indiana 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 camper and trailer operating departments manufacture different products and have their own managers. The office department, which Whitehorse also manages, provides services equally to the two operating departments. A 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 annual departmental budgets and actual costs for the two operating departments follow.
Budget | Actual | |||||
Campers | Trailers | Combined | Campers | Trailers | Combined | |
Raw material | \(195,000 | \)275,000 | \(470,000 | \)194,200 | \(273,200 | \)467,400 |
Employee wages | 104,000 | 205,000 | 309,000 | 106,600 | 206,400 | 313,000 |
Dept. manager salary | 43,000 | 52,000 | 95,000 | 44,000 | 53,500 | 97,500 |
Supplies used | 33,000 | 90,000 | 123,000 | 31,700 | 91,600 | 123,300 |
Depreciation -Equipment | 60,000 | 125,000 | 185,000 | 60,000 | 125,000 | 185,000 |
Utilities | 3,600 | 5,400 | 9,000 | 3,300 | 5,000 | 8,300 |
Building rent | 5,700 | 9,300 | 15,000 | 5,300 | 8,700 | 14,000 |
Office department cost | 68,750 | 68,750 | 137,500 | 67,550 | 67,550 | 135,100 |
Totals | \(513,050 | \)830,450 | \(1,343,500 | \)512,650 | \(830,950 | \)1,343,600 |
The office department’s annual budget and its actual costs follow.
Budget | Actual | |
Plant manager salary | \(80,000 | \)82,000 |
Other office salaries | \(32,500 | 30,100 |
Other office costs | 25,000 | 23,000 |
Totals | \)137,500 | $135,100 |
Required
1. Prepare responsibility accounting performance reports like those in Exhibit 22.2 that list costs controlled by the following:
a. Manager of the camper department.
b. Manager of the trailer department.
c. Manager of the Indiana plant. In each report, include the budgeted and actual costs and show the amount that 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
For a recent year L’Oréal reported operating profit of €3,385 (in millions) for its cosmetics division. Total assets were €12,888 (in millions) at the beginning of the year and €13,099 (in millions) at the end of the year. Compute return on investment for the year. State your answer as a percent, rounded to one decimal.
The trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of \(200 each. Each trailer incurs \)80 of variable manufacturing costs. The trailer division has capacity for 40,000 trailers per year and incurs fixed costs of \(1,000,000 per year.
Assume transfer prices of either \)80 per trailer or $140 per trailer are being considered. Comment on the preferred transfer prices from the perspectives of the trailer division manager, the assembly
Williams Company began operations in January 2017 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.
| WILLIAMS COMPANY | |||
| Departmental Income Statements | |||
| For Year Ended December 31, 2017 | |||
Particular | Clock | Mirror | Combined |
Sales | \(130,000 | \)55,000 | \(185,000 |
Cost of goods sold | 63,700 | 34,100 | 97,800 |
Gross profit | 66,300 | 20,900 | 87,200 |
Direct expenses | |||
Sales salaries | 20,000 | 7,000 | 27,000 |
Advertising | 1,200 | 500 | 1,700 |
Store supplies used | 900 | 400 | 1,300 |
Depreciation – equipment | 1,500 | 300 | 1,800 |
Total direct expenses | 23,600 | 8,200 | 31,800 |
Allocated expenses | |||
Rent expenses | 7,020 | 3,780 | 10,800 |
Utilities expenses | 2,600 | 1,400 | 4,000 |
Share of office department expenses | 10,500 | 4,500 | 15,000 |
Total allocated expenses | 20,120 | 9,680 | 29,800 |
Total expenses | 43,720 | 17,880 | 61,600 |
Net income | 22,580 | 3,020 | 25,600 |
Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate \)50,000 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, \(8,000; advertising, \)800; store supplies, \(500; and equipment depreciation, \)200. It will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new painting department will fill one-fifth of the space presently used by the clock department and one-fourth used by the mirror 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 painting department to increase total office department expenses by $7,000. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 8%. No changes for those departments’ gross profit percents or 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.)
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