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AF2110 Assignment 10

Management Accounting 1

PROBLEM 6–21 Segment Reporting and Decision-Making [LO6–4] Vulcan Company’s contribution format income statement for June is given below:

Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:

a. The company is divided into two sales territories—Northern and Southern. The Northern territory recorded $300,000 in sales and $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $120,000 and $108,000 are traceable to the Northern and Southern territories, respectively. The rest of the fixed expenses are common to the two territories.

b. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $50,000 and $250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that $30,000 of the Northern territory’s fixed expenses are traceable to Paks and $40,000 to Tibs, with the remainder common to the two products.

Required: 1. Prepare contribution format segmented income statements first showing the total company broken down between sales territories and then showing the Northern territory broken down by product line. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales. 2. Look at the statement you have prepared showing the total company segmented by sales territory. What insights revealed by this statement should be brought to the attention of management? 3. Look at the statement you have prepared showing the Northern territory segmented by product lines. What insights revealed by this statement should be brought to the attention of management?

CASE 6–30 Service Organization; Segment Reporting [LO6–4] Music Teachers, Inc., is an educational association for music teachers that has 20,000 members. The association operates from a central headquarters but has local membership chapters throughout the United States. Monthly meetings are held by the local chapters to discuss recent developments on topics of interest to music teachers. The association’s journal, Teachers’ Forum, is issued monthly with features about recent developments in the field. The association publishes books and reports and also sponsors professional courses that qualify for continuing professional education credit. The association’s statement of revenues and expenses for the current year is presented below.

The board of directors of Music Teachers, Inc., has requested that a segmented income statement be prepared showing the contribution of each segment to the association. The association has four segments: Membership Division, Magazine Subscriptions Division, Books and Reports Division, and Continuing Education Division. Mike Doyle has been assigned responsibility for preparing the segmented income statement, and he has gathered the following data prior to its preparation.

a. Membership dues are $100 per year, of which $20 is considered to cover a one-year subscription to the association’s journal. Other benefits include membership in the association and chapter affiliation. The portion of the dues covering the magazine subscription ($20) should be assigned to the Magazine Subscription Division.

b. One-year subscriptions to Teachers’ Forum were sold to nonmembers and libraries at $30 per subscription. A total of 2,500 of these subscriptions were sold last year. In addition to subscriptions, the magazine generated $100,000 in advertising revenues. The costs per magazine subscription were $7 for printing and paper and $4 for postage and shipping.

c.

A total of 28,000 technical reports and professional texts were sold by the Books and Reports Division at an average unit selling price of $25. Average costs per publication were $4 for printing and paper and $2 for postage and shipping.

d. The association offers a variety of continuing education courses to both members and nonmembers. The one-day courses had a tuition cost of $75 each and were attended by 2,400 students. A total of 1,760 students took two-day courses at a tuition cost of $125 for each student. Outside instructors were paid to teach some courses.

e. Salary costs and space occupied by division follow:

f.

Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $280,000 in occupancy costs includes $50,000 in rental cost for a warehouse used by the Books and Reports Division for storage purposes.

g. Printing and paper costs other than for magazine subscriptions and for books and reports relate to the Continuing Education Division.

h. General and administrative expenses include costs relating to overall administration of the association as a whole. The company’s corporate staff does some mailing of materials for general administrative purposes. The expenses that can be traced or assigned to the corporate staff, as well as any other expenses that are not traceable to the segments, will be treated as common costs. It is not necessary to distinguish between variable and fixed costs.

Required: 1. Prepare a contribution format segmented income statement for Music Teachers, Inc. This statement should show the segment margin for each division as well as results for the association as a whole. 2. Give arguments for and against allocating all costs of the association to the four divisions. 3. (CMA, adapted)

EXERCI SE11–6Cont r ast i ngRet ur nonI nvest ment( ROI )andResi dual I ncome[ LO11–1,LO11–2] Mei j i I s et anCor p.ofJ apanhast wor egi onaldi vi si onswi t hheadquar t er si nOs akaandYok ohama. Sel ect eddat aont het wodi v i si onsf ol l ow:

Requi r ed: 1.

Foreac hdi vi s i on,c omput et her et ur noni nv es t ment( ROI )i nt er msofmar gi nandt ur nov er . Wher enecess ar y ,c ar r yc omput at i onst ot wodec i malpl aces .

2.

Ass umet hatt hecompanyev al uat esper f or manc eus i ngr es i duali ncomeandt hatt he mi ni mum r equi r edr at eofr et ur nf oranydi vi s i oni s15%.Comput et her esi duali ncomef oreac h di vi si on.

3.

I sYok ohama’ sgr eat eramountofr esi duali nc omeani ndi cat i ont hati ti sbet t ermanaged? Ex pl ai n.

EXERCI SE11–12Eval uat i ngNew I nvest ment sUsi ngRet ur nonI nvest ment ( ROI )andResi dualI ncome[ LO11–1,LO11–2] Sel ect eds al esandoper at i ngdat af ort hr eedi v i s i onsofdi ffer entst r uc t ur alengi neer i ngfi r msar egi v en asf ol l ows :

Requi r ed: 1. 2. 3.

Comput et her et ur noni nv est ment( ROI )f oreac hdi vi si onusi ngt hef or mul as t at edi nt er msof mar gi nandt ur nov er . Comput et her esi duali ncomef oreac hdi v i s i on. Ass umet hateac hdi vi s i oni spr esent edwi t hani nv est mentoppor t uni t yt hatwoul dy i el da15% r at eofr et ur n. a. I fper f or manc ei sbei ngmeas ur edbyROI ,whi c hdi v i s i onordi v i s i onswi l lpr obabl y acc eptt heoppor t uni t y ?Rej ect ?Why ? b. I fper f or mancei sbei ngmeasur edbyr esi duali nc ome,whi c hdi v i s i onordi vi s i onswi l l pr obabl yacc eptt heoppor t uni t y ?Rej ect ?Why ?

PROBLEM 11–14Measur esofI nt er nalBusi nessPr ocessPer f or mance[ LO11– 3] Dat aSpan,I nc . ,aut omat edi t spl antatt hes t ar toft hecur r enty earandi ns t al l edaflex i bl e manuf act ur i ngs y s t em.Thecompanyi sal s oev al uat i ngi t ss uppl i er sandmovi ngt owar dLean Pr oduct i on.Manyadj us t mentpr obl emshav ebeenencount er ed,i ncl udi ngpr obl emsr el at i ngt o per f or mancemeas ur ement .Af t ermuchs t udy ,t hecompanyhasdec i dedt ouset heper f or manc e meas ur esbel ow,andi thasgat her eddat ar el at i ngt ot hes emeas ur esf ort hefir s tf ourmont hsof oper at i ons .

Managementhasas k edf ory ourhel pi ncomput i ngt hr oughputt i me,del i v er yc y c l et i me,andMCE. Thef ol l owi ngav er aget i meshav ebeenl oggedov ert hel as tf ourmont hs :

Requi r ed: 1.

Foreac hmont h,c omput et hef ol l owi ng: a. Thet hr oughputt i me. b. TheMCE. c . Thedel i v er ycy cl et i me.

2.

Ev al uat et hecompany ’ sper f or manceov ert hel as tf ourmont hs .

3.

Ref ert ot hemov et i me,pr oces st i me,ands of or t h,gi v enabov ef ormont h4. a. As sumet hati nmont h5t hemov et i me,pr oces st i me,ands of or t h,ar et hes ameasi n mont h4,ex ceptt hatt hr ought heus eofLeanPr oduct i ont hecompanyi sabl et o c ompl et el yel i mi nat et hequeuet i medur i ngpr oduct i on.Comput et henew t hr oughputt i meandMCE. b. As sumei nmont h6t hatt hemov et i me,pr oc esst i me,ands of or t h,ar eagai nt he s ameasi nmont h4,ex c eptt hatt hecompanyi sabl et ocompl et el yel i mi nat ebot h t hequeuet i medur i ngpr oduct i onandt hei nspect i ont i me.Comput et henew t hr oughputt i meandMCE.

PROBLEM 11–15Ret ur nonI nvest ment( ROI )andResi dualI ncome[ LO11– 1, LO11–2] Fi nanci aldat af orJ oeldePar i s ,I nc. ,f orl asty earf ol l ow:

Thecompanypai ddi v i dendsof$15, 000l as ty ear .The“ I nv es t menti nBui ss on,S. A. , ”ont hebal ance s heetr epr esent sani nv es t menti nt hes t ockofanot hercompany .

Requi r ed: 1.

Comput et hecompany’ smar gi n,t ur nov er ,andr et ur noni nv est ment( ROI )f orl asty ear .

2.

Theboar dofdi r ect or sofJoeldePar i s,I nc . ,hass etami ni mum r equi r edr at eofr et ur nof 15%.Whatwast hecompany’ sr es i duali ncomel as ty ear ?

PROBLEM 11–18Ret ur nonI nvest ment( ROI )andResi dualI ncome[ LO11– LO11–2] 1, “ Iknowheadquar t er swant sust oaddt hatnewpr oductl i ne, ”sai dDel l Hav asi ,managerofBi l l i ngs Company’ sOfficePr oduct sDi v i s i on.“ ButIwantt os eet henumber sbef or eImak eanymov e.Our di vi si on’ sr et ur noni nv est ment( ROI )hasl edt hec ompanyf ort hr eey ear s ,andIdon’ twantany l et down. ” Bi l l i ngsCompanyi sadecent r al i z edwhol esal erwi t hfi v eaut onomousdi vi s i ons .Thedi v i si onsar e ev al uat edont hebasi sofROI ,wi t hy ear endbonusesgi v ent ot hedi v i s i onalmanager swhohav et he hi ghestROI s .Oper at i ngr esul t sf ort hecompany’ sOffic ePr oduct sDi v i s i onf ort hemostr ec enty ear ar egi v enbel ow:

Thecompanyhadanov er al lr et ur noni nv est ment( ROI )of15% l as ty ear( c ons i der i ngal ldi v i si ons) . TheOfficePr oduct sDi v i si onhasanoppor t uni t yt oaddanewpr oductl i net hatwoul dr equi r ean addi t i onali nv es t menti noper at i ngass et sof$1, 000, 000.Thecostandr ev enuec har act er i s t i csoft he newpr oductl i nepery earwoul dbe:

Requi r ed: 1.

Comput et heOffic ePr oduct sDi v i s i on’ sROIf ort hemos tr ec enty ear ;al socomput et heROI asi twoul dappeari ft henewpr oductl i nei sadded.

2.

I fy ouwer ei nDel lHav as i ’ sposi t i on,woul dy ouacc eptorr ej ec tt henewpr oduc tl i ne ?Ex pl ai n.

3.

Whydoy ous uppos eheadquar t er si sanx i ousf ort heOfficePr oduct sDi v i s i ont oaddt henew pr oductl i ne ?

4.

Supposet hatt hec ompany’ smi ni mum r equi r edr at eofr et ur nonoper at i ngass et si s12% and t hatper f or mancei sev al uat edus i ngr es i duali ncome. a. Comput et heOffic ePr oduct sDi v i s i on’ sr esi duali nc omef ort hemos tr ec enty ear ;al so c omput et her esi duali ncomeasi twoul dappeari ft henewpr oductl i nei sadded. b. Undert hesec i r c ums t anc es,i fy ouwer ei nDel lHav as i ’ sposi t i on,woul dy ouacc eptor r ej ectt henewpr oductl i ne ?Ex pl ai n.

CASE11–23Bal ancedScor ecar d[ LO11–4] Hagl undDepar t mentSt or ei sl ocat edi nt hedownt ownar eaofas mal lc i t y .Whi l et hes t or ehadbeen pr ofi t abl ef ormanyy ear s ,i ti sf ac i ngi nc r eas i ngcompet i t i onf r om l ar genat i onalc hai nst hathav eset upst or esont heout sk i r t soft heci t y .Rec ent l yt hedownt ownar eahasbeenunder goi ngr evi t al i z at i on, andt heowner sofHagl undDepar t mentSt or ear esomewhatopt i mi s t i ct hatpr ofit abi l i t yc anbe r est or ed. I nanat t emptt oaccel er at et her et ur nt opr ofit abi l i t y ,managementofHagl undDepar t mentSt or ei si n t hepr oces sofdesi gni ngabal ancedsc or ecar df ort hecompany .Managementbel i ev est hecompany s houl df ocusont wok eypr obl ems.Fi r st ,cus t omer sar et aki ngl ongerandl ongert opayt hebi l l st hey i ncurus i ngt hedepar t mentst or e’ sc har gec ar d,andt hec ompanyhasf armor ebaddebt st hanar e nor malf ort hei ndust r y .I ft hi spr obl em wer esol v ed,t hecompanywoul dhav emor ec as ht omak e muc hneededr enov at i ons .I nv es t i gat i onhasr ev eal edt hatmuc hoft hepr obl em wi t hl at epay ment s andunpai dbi l l sr esul t sf r om cus t omer sdi s put i ngi nc or r ectc har gesont hei rbi l l s .Thes ei ncor r ect c har gesus ual l yocc urbecaus es al es cl er ksi nc or r ect l yent erdat aont hec har geaccountsl i p.Second, t hecompanyhasbeeni nc ur r i ngl ar gel oss esonuns ol dseasonalappar el .Suc hi t emsar eor di nar i l y r esol datal os st odi s countst or est hatspec i al i z ei nsuc hdi st r es si t ems . Themeet i ngi nwhi cht hebal ancedsc or ecar dappr oac hwasdi sc uss edwasdi sor gani z edand i neffect i v el yl ed—poss i bl ybec aus enooneot hert hanoneoft hevi c epr es i dent shadr eadany t hi ng abouthowt obui l dabal ancedsc or ec ar d.Nev er t hel ess ,anumberofpot ent i alper f or mancemeas ur es wer esuggest edbyv ar i ousmanager s .Thes epot ent i alper f or mancemeasur esar e: a. Per c ent ageofchar geacc ountbi l l sc ont ai ni nger r or s. b. Per c ent ageofsal esc l er k st r ai nedt oc or r ect l yent erdat aonchar geacc ounts l i ps . c . Av er ageageofaccount sr ecei v abl es . d. Pr ofi tperempl oy ee. e. Cus t omers at i s f act i onwi t hacc ur ac yofc har geacc ountbi l l sf r om mont hl ycus t omers ur v ey . f . Tot als al esr ev enue. g. Sal esperempl oy ee. h. Tr av el ex pensesf orbuy er sf ort r i pst of ashi ons hows . i . Unsol di nv ent or yatt heendoft hes eas onasaper cent ageoft ot alc ostofs al es . j . Cour t es ys hownbyj uni ors t affmember st oseni orst affmember sbas edons ur v ey sofseni or s t aff. k . Per c ent ageofsuppl i er smak i ngj us t i nt i medel i v er i es . l . Sal espersquar ef ootoffloors pace. m.Wr i t t enoffacc ount sr ecei v abl e( baddebt s)asaper c ent ageofs al es . n. Qual i t yoff oodi nt hest affcaf et er i abas edons t affsur v eys . o. Per c ent ageofempl oy eeswhohav eat t endedt heci t y’ sc ul t ur al di v er si t ywor k s hop. p. Tot alpr ofit .

Requi r ed: 1.

Assomeonewi t hmor eknowl edgeoft hebal anc eds cor ec ar dt hanal mos tany oneel s ei nt he c ompany ,y ouhav ebeenask edt obui l dani nt egr at edbal anceds cor ec ar d.I ny oursc or ecar d, us eonl yper f or manc emeasur esl i s t edpr evi ous l y .Youdonothav et ouseal l oft heper f or manc e

meas ur ess uggest edbyt hemanager s ,buty ous houl dbui l dabal ancedsc or ecar dt hatr ev eal sa s t r at egyf ordeal i ngwi t ht hepr obl emswi t haccount sr ecei v abl eandwi t huns ol dmer c handi s e. Const r uctt hebal ancedsc or ecar df ol l owi ngt hef or matus edi nEx hi bi t115.Donotbeconcer ned wi t hwhet heras pec i fi cper f or mancemeas ur ef al l swi t hi nt hel ear ni ngandgr owt h,i nt er nal bus i nes spr ocess ,c us t omer ,orfinanc i al per s pec t i v e.Howev er ,us ear r owst os howt hecaus al l i nk sbet weenper f or manc emeasur eswi t hi ny ourbal anc edsc or ec ar dandex pl ai nwhet hert he per f or mancemeas ur ess houl ds howi ncr easesordecr eases . 2.

Ass umet hatt hecompanyadopt sy ourbal ancedsc or ecar d.Af t eroper at i ngf oray ear ,s ome per f or mancemeas ur ess howi mpr ov ement s ,butnotot her s .Whats houl dmanagementdonex t ?

3. a.

Supposet hatcus t omer sex pr es sgr eat ersat i s f act i onwi t ht heacc ur ac yoft hei rc har ge acc ountbi l l sbutt heper f or mancemeasur esf ort heav er ageageofacc ount sr ec ei v abl eand f orbaddebt sdonoti mpr ov e.Expl ai nwhyt hi smi ghthappen. b. Supposet hatt heper f or mancemeas ur esf ort heav er ageageofaccount sr ecei v abl e, baddebt s ,andunsol di nv ent or yi mpr ov e,butt ot al pr ofit sdonot .Expl ai nwhyt hi smi ght happen.Ass umei ny ourans wert hatt heexpl anat i onl i eswi t hi nt hec ompany ....