ACC 212 Homework 7

Exercise 24-1 Departmental expense allocations LO P2

Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

Indirect Expense		Cost	Allocation Base
Supervision	$	83,600	Number of employees
Utilities		61,000	Square feet occupied
Insurance		28,000	Value of assets in use

Total	$	172,600

Departmental data for the company’s recent reporting period follow.

Department	Employees		Square Feet		Asset Values
Materials		22		21,000	$	17,750
Personnel		11		5,250		2,130
Manufacturing		44		68,250		36,210
Packaging		33		10,500		14,910

Total		110		105,000	$	71,000

Exercise 24-3 Departmental contribution report LO P3

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its electric guitar department since it has a net loss. The company classifies advertising, rent, and utilities expenses as indirect.

WHOLESALE GUITARS Departmental Income Statements For Year Ended December 31, 2013
	Acoustic		Electric
Sales	$	101,700	$	84,200
Cost of goods sold		45,475		47,350

Gross profit		56,225		36,850
Operating expenses
Advertising expense		5,015		4,260
Depreciation expense-equipment		10,140		8,530
Salaries expense		19,300		17,900
Supplies expense		1,990		1,730
Rent expense		7,095		6,010
Utilities expense		2,995		2,590

Total operating expenses		46,535		41,020

Net income (loss)	$	9,690	$	(4,170	)

Exercise 24-4 Departmental expense allocation spreadsheet LO P2

Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.

Department	Direct Expenses		Square Feet
Advertising	$	17,000		1,089
Administrative		18,300		1,152
Shoes		101,500		6,336
Clothing		11,800		4,224

The advertising department developed and distributed 120 advertisements during the year. Of these, 76 promoted shoes and 44 promoted clothing. The store sold $350,000 of merchandise during the year. Of this amount, $223,000 is from the shoes department, and $127,000 is from the clothing department. The utilities expense of $64,000 is an indirect expense to all departments.

Complete the departmental expense allocation spreadsheet for Marathon Running Shop. Assign (1) direct expenses to each of the four departments, (2) the $64,000 of utilities expense to the four departments on the basis of floor space occupied, (3) the advertising department’s expenses to the two operating departments on the basis of the number of ads placed that promoted a department’s products, and (4) the administrative department’s expenses to the two operating departments based on the amount of sales.

Exercise 24-5 Service department expenses allocated to operating departments LO P2

Advertising and purchasing department expenses of Cozy Bookstore 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 Orders
Books	$	180,000		984
Magazines		108,000		600
Newspapers		72,000		816

Total	$	360,000		2,400

Exercise 24-7 Investment center analysis LO A1

You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $65,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $42,000.

Compute the return on investment for each Fast & Great Burgers alternative.

Exercise 24-8 Computing return on assets and residual income; investing decision LO A1

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

Investment Center		Sales		Net Income	Average Invested Assets
Electronics	$	10,900,000	$	617,500	$	3,250,000
Sporting goods		8,900,000		912,000		5,700,000

Exercise 24-9 Computing margin and turnover; department efficiency LO A2

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

Investment Center		Sales		Net Income	Average Invested Assets
Electronics	$	9,000,000	$	670,000	$	3,750,000
Sporting goods		9,350,000		970,000		5,500,000

Exercise 24-11A Determining transfer prices LO C2

The Trailer department of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $91 each. Each trailer incurs $35 of variable manufacturing costs. The Trailer department has capacity for 22,000 trailers per year, and incurs fixed costs of $550,000 per year.

Exercise 24-12B Joint real estate costs assigned LO C3

Heart & Home Properties is developing a subdivision that includes 340 home lots. The 240 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 100 lots in the Hilltop section offer unobstructed views. The expected selling price for each Canyon lot is $57,000 and for each Hilltop lot is $92,000. The developer acquired the land for $2,400,000 and spent another $2,100,000 on street and utilities improvements.

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