Chapter 22: Q4DQ (page 1012)
______ costs are not within the manager’s control or influence.
Uncontrollable cost is not under the control of the manager.
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Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
Investment Center | Sales | Income | Average Invested Assets |
Electronic goods | \(40,000,000 | \)2,880,000 | 16,000,000 |
Sporting goods | 20,000,000 | 2,040,000 | 12,000,000 |
1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company?
2. Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company?
3. Assume the electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? Explain.
Suggest a reasonable basis for allocating each of the following indirect expenses to departments: (a) salary of a supervisor who manages several departments, (b) rent, (c) heat, (d) electricity for lighting, (e) janitorial services, (f) advertising, (g) expired insurance on equipment, and (h) property taxes on equipment.
Refer to the information in Exercise 22-1 and prepare a responsibility accounting report for the ATV department.
Oakwood Company produces maple bookcases. The following information is available for the production of a recent order of 500 bookcases.
Process time | 6.0 days | Move time | 3.2 days |
Inspection time | 0.8 days | Wait time | 5.0 days |
1. Compute the company’s manufacturing cycle time.
2. Compute the company’s manufacturing cycle efficiency. Interpret your answer.
3. Management believes it can reduce move time by 1.2 days and wait time by 2.8 days by adopting lean manufacturing techniques. Compute the company’s manufacturing cycle efficiency assuming the company’s predictions are correct.
Suggest several reasons why a 2:1 current ratio might not be adequate for a particular company
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