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Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows: Indirect labor $5.00 Indirect materials 2.50 Maintenance .50 Utilities .30 Fixed overhead costs per month are: Supervision $1,200 Insurance 400 Property taxes 600 Depreciation 1,800 The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2013, the company incurs the following manufacturing overhead costs: Indirect labor $28,000 Indirect materials 16,200 Maintenance 2,800 Utilities 1,900 Supervision 1,440 Insurance 400 Property taxes 600 Depreciation 1,860 Ex. 186 (Cont.) Instructions Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August. Ex. 187 Lapp Manufacturing uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $400,000 to $480,000. Variable costs and their percentage relationships to sales are: Sales commissions 6% Advertising 4% Traveling 5% Delivery 1% Fixed selling expenses consist of sales salaries $80,000 and depreciation on delivery equipment $20,000. Instructions Prepare a flexible budget for increments of $40,000 of sales within the relevant range. Ex. 188 Cadiz Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are: Sales commissions 5% Advertising 4% Traveling 7% Delivery 1% Fixed selling expenses consist of sales salaries $40,000 and depreciation on delivery equipment $10,000. The actual selling expenses incurred in February, 2013, by Cadiz are as follows: Sales commissions $17,200 Advertising 12,000 Traveling 23,700 Delivery 2,400 Fixed selling expenses consist of sales salaries $41,500 and depreciation on delivery equipment $10,000. Instructions Prepare a flexible budget performance report, assuming that February sales were $330,000. Ex. 189 A flexible budget graph for the Assembly Department shows the following: 1. At zero direct labor hours, the total budgeted cost line intersects the vertical axis at $120,000. 2. At normal capacity of 50,000 direct labor hours, the line drawn from the total budgeted cost line intersects the vertical axis at $360,000. Instructions Develop the budgeted cost formula for the Assembly Department and identify the fixed and variable costs. Ex. 190 Ace Production Co. has two production departments, Fabricating and Assembling. At a department managers’ meeting, the controller uses flexible budget graphs to explain total budgeted costs. Separate graphs based on direct labor hours are used for each department. The graphs show the following. 1. At zero direct labor hours, the total budgeted cost line and the fixed cost line intersect the vertical axis at $100,000 in the Fabricating Department, and $80,000 in the Assembling Department. Ex. 190 (Cont.) 2. At normal capacity of 100,000 direct labor hours, the line drawn from the total budgeted cost line intersects the vertical axis at $360,000 in the Fabricating Department, and $290,000 in the Assembling Department. Instructions (a) State the total budgeted cost formula for each department. (b) Compute the total budgeted cost for each department, assuming actual direct labor hours worked were 106,000 and 94,000, in the Fabricating and Assembling Departments, respectively. Ex. 191 Hubbard, Inc.’s static budget at 3,000 units of production includes $12,000 for direct labor, $3,000 for utilities (variable), and total fixed costs of $24,000. Actual production and sales for the year was 9,000 units, with an actual cost of $70,800. Instructions Determine if Hubbard is over or under budget. Ex. 192 Campbell Clothing produces men’s ties. The following budgeted and actual amounts are for 2013: Cost Budget at 5,000 Units Actual Amounts at 5,800 Units Direct materials $60,000 $71,000 Direct labor 75,000 86,500 Equipment depreciation 5,000 5,000 Indirect labor 7,500 8,600 Indirect materials 9,000 9,600 Rent and insurance 12,000 13,000 Instructions Prepare a performance budget report for Campbell Clothing for the year. Ex. 193 Data concerning manufacturing overhead for Wilson Industries are presented below. The Mixing Department is a cost center. An analysis of the overhead costs reveals that all variable costs are controllable by the manager of the Mixing Department and that 50% of supervisory costs are controllable at the department level. Ex. 193 (Cont.) The flexible budget formula and the cost and activity for the months of July and August are as follows: Flexible Budget Per Direct Labor Hour Actual Costs and Activity July August Direct labor hours 6,000 7,000 Overhead costs Variable Indirect materials $3.50 $ 20,500 $ 25,100 Indirect labor 6.00 39,500 40,700 Factory supplies 1.00 7,600 8,200 Fixed Depreciation $20,000 15,000 15,000 Supervision 25,000 23,000 26,000 Property taxes 10,000 12,000 12,000 Total costs $117,600 $127,000 Instructions (a) Prepare the responsibility reports for the Mixing Department for each month. (b) Comment on the manager’s performance in controlling costs during the two month period. Ex. 194 Strickland Corp.’s manufacturing overhead budget for the first quarter of 2013 contained the following data: Variable Costs Indirect materials $40,000 Indirect labor 24,000 Utilities 20,000 Maintenance 12,000 Ex. 194 (Cont.) Fixed Costs Supervisor’s salary $80,000 Depreciation 16,000 Property taxes 8,000 Actual variable costs for the first quarter were: Indirect materials $37,200 Indirect labor 26,400 Utilities 21,000 Maintenance 10,600 Actual fixed costs were as expected except for property taxes which were $9,000. All costs are considered controllable by the department manager except for the supervisor’s salary. Instructions Prepare a manufacturing overhead responsibility performance report for the first quarter. Ex. 195 The Deluxe Division, a profit center of Riley Manufacturing Company, reported the following data for the first quarter of 2013: Sales $9,000,000 Variable costs 6,300,000 Controllable direct fixed costs 1,200,000 Noncontrollable direct fixed costs 530,000 Indirect fixed costs 300,000 Instructions (a) Prepare a performance report for the manager of the Deluxe Division. (b) What is the best measure of the manager’s performance? Why? (c) How would the responsibility report differ if the division was an investment center? Ex. 196 Danner Co. has three divisions which are operated as profit centers. Actual operating data for the divisions listed alphabetically are as follows. Operating Data Women’s Shoes Men’s Shoes Children’s Shoes Contribution margin $280,000 (3) $220,000 Controllable fixed costs 130,000 (4) (5) Controllable margin (1) $ 90,000 96,000 Sales 800,000 480,000 (6) Variable costs (2) 330,000 250,000 Instructions (a) Compute the missing amounts. Show computations. (b) Prepare a responsibility report for the Women’s Shoe Division assuming (1) the data are for the month ended June 30, 2013, and (2) all data equal budget except variable costs which are $20,000 over budget. Ex. 197 The Real Estate Products Division of McKenzie Co. is operated as a profit center. Sales for the division were budgeted for 2013 at $1,250,000. The only variable costs budgeted for the division were cost of goods sold ($610,000) and selling and administrative ($80,000). Fixed costs were budgeted at $130,000 for cost of goods sold, $120,000 for selling and administrative and $95,000 for noncontrollable fixed costs. Actual results for these items were: Sales $1,175,000 Cost of goods sold Variable 545,000 Fixed 140,000 Selling and administrative Variable 82,000 Fixed 100,000 Noncontrollable fixed 105,000 Instructions (a) Prepare a responsibility report for the Real Estate Products Division for 2013. (b) Assume the division is an investment center, and average operating assets were $1,200,000. Compute ROI. Ex. 198 The Pacific Division of Henson Industries reported the following data for the current year. Sales $4,000,000 Variable costs 2,600,000 Controllable fixed costs 800,000 Average operating assets 5,000,000 Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the Pacific Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 1. Increase sales by $400,000 with no change in the contribution margin percentage. 2. Reduce variable costs by $120,000. 3. Reduce average operating assets by 4% Instructions (a) Compute the return on investment (ROI) for the current year. (b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.) Ex. 199 The Medford Burkett Company uses a responsibility reporting system to measure the performance of its three investment centers: Planes, Taxis, and Limos. Segment performance is measured using a system of responsibility reports and return on investment calculations. The allocation of resources within the company and the segment managers’ bonuses are based in part on the results shown in these reports. Recently, the company was the victim of a computer virus that deleted portions of the company’s accounting records. This was discovered when the current period’s responsibility reports were being prepared. The printout of the actual operating results appeared as follows. Planes Taxis Limos Service revenue $ ? $450,000 $ ? Variable costs 5,000,000 ? 320,000 Contribution margin ? 180,000 380,000 Controllable fixed costs 1,500,000 ? ? Controllable margin ? 70,000 176,000 Average operating assets 25,000,000 ? 1,600,000 Return on investment 12% 10% ? Instructions Determine the missing pieces of information above. Ex. 200 Perez Corp. reported the following: Beginning of year operating assets $3,200,000 End of year operating assets 3,000,000 Contribution margin 1,000,000 Sales 5,000,000 Controllable fixed costs 643,000 Its required return is 10%. Instructions Compute the company’s ROI. Ex. 201 Lombard, Inc. has two investment centers and has developed the following information: Department A Department B Departmental controllable margin $120,000 ? Average operating assets ? $400,000 Sales 800,000 250,000 ROI 10% 12% Instructions Answer the following questions about Department A and Department B. 1. What was the amount of Department A’s average operating assets? $____________. 2. What was the amount of Department B’s controllable margin? $____________. 3. If Department B is able to reduce its operating assets by $100,000, Department B’s new ROI would be ____________. 4. If Department A is able to increase its controllable margin by $60,000 as a result of reducing variable costs, Department A’s new ROI would be _________________. Ex. 202 The Atlantic Division of Stark Productions Company reported the following results for 2013: Sales $4,000,000 Variable costs 3,200,000 Controllable fixed costs 300,000 Average operating assets 2,500,000 Management is considering the following independent alternative courses of action in 2014 in order to maximize the return on investment for the division. 1. Reduce controllable fixed costs by 10% with no change in sales or variable costs. 2. Reduce average operating assets by 10% with no change in controllable margin. 3. Increase sales $500,000 with no change in the contribution margin percentage. Instructions (a) Compute the return on investment for 2013. (b) Compute the expected return on investment for each of the alternative courses of action. Ex. 203 Data for the following subsidiaries of Olive Manufacturing, which are operated as investment centers, are as follows: Fleming Company Oak Company Sales $3,000,000 $2,000,000 Controllable margin (1) (3) Average operating assets (2) 4,000,000 Contribution margin 1,200,000 800,000 Controllable fixed costs 500,000 200,000 Return on Investment 10% (4) Instructions Compute the missing amounts using the ROI formula. Ex. 204 The data for an investment center is given below. 1/1/12 12/31/12 Current assets $ 300,000 $ 700,000 Plant assets 3,000,000 4,000,000 Idle plant assets 250,000 330,000 Land held for future use 1,200,000 1,200,000 The controllable margin is $760,000. Instructions What is the return on investment for the center for 2013?

Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows:

Indirect labor $5.00

Indirect materials 2.50

Maintenance .50

Utilities .30

Fixed overhead costs per month are:

Supervision $1,200

Insurance 400

Property taxes 600

Depreciation 1,800

The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2013, the company incurs the following manufacturing overhead costs:

Indirect labor $28,000

Indirect materials 16,200

Maintenance 2,800

Utilities 1,900

Supervision 1,440

Insurance 400

Property taxes 600

Depreciation 1,860

 

Ex. 186 (Cont.)

Instructions

Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August.

 

Ex. 187

Lapp Manufacturing uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $400,000 to $480,000. Variable costs and their percentage relationships to sales are:

Sales commissions 6%

Advertising 4%

Traveling 5%

Delivery 1%

Fixed selling expenses consist of sales salaries $80,000 and depreciation on delivery equipment $20,000.

Instructions

Prepare a flexible budget for increments of $40,000 of sales within the relevant range.

 

Ex. 188

Cadiz Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are:

Sales commissions 5%

Advertising 4%

Traveling 7%

Delivery 1%

Fixed selling expenses consist of sales salaries $40,000 and depreciation on delivery equipment $10,000.

The actual selling expenses incurred in February, 2013, by Cadiz are as follows:

Sales commissions $17,200

Advertising 12,000

Traveling 23,700

Delivery 2,400

Fixed selling expenses consist of sales salaries $41,500 and depreciation on delivery equipment $10,000.

Instructions

Prepare a flexible budget performance report, assuming that February sales were $330,000.

 

Ex. 189

A flexible budget graph for the Assembly Department shows the following:

1. At zero direct labor hours, the total budgeted cost line intersects the vertical axis at $120,000.

2. At normal capacity of 50,000 direct labor hours, the line drawn from the total budgeted cost line intersects the vertical axis at $360,000.

Instructions

Develop the budgeted cost formula for the Assembly Department and identify the fixed and variable costs.

 

Ex. 190

Ace Production Co. has two production departments, Fabricating and Assembling. At a department managers’ meeting, the controller uses flexible budget graphs to explain total budgeted costs. Separate graphs based on direct labor hours are used for each department. The graphs show the following.

1. At zero direct labor hours, the total budgeted cost line and the fixed cost line intersect the vertical axis at $100,000 in the Fabricating Department, and $80,000 in the Assembling Department.


Ex. 190 (Cont.)

2. At normal capacity of 100,000 direct labor hours, the line drawn from the total budgeted cost line intersects the vertical axis at $360,000 in the Fabricating Department, and $290,000 in the Assembling Department.

Instructions

(a) State the total budgeted cost formula for each department.

(b) Compute the total budgeted cost for each department, assuming actual direct labor hours worked were 106,000 and 94,000, in the Fabricating and Assembling Departments, respectively.

 

Ex. 191

Hubbard, Inc.’s static budget at 3,000 units of production includes $12,000 for direct labor, $3,000 for utilities (variable), and total fixed costs of $24,000. Actual production and sales for the year was 9,000 units, with an actual cost of $70,800.

Instructions

Determine if Hubbard is over or under budget.

 


Ex. 192

Campbell Clothing produces men’s ties. The following budgeted and actual amounts are for 2013:

Cost Budget at 5,000 Units Actual Amounts at 5,800 Units

Direct materials $60,000 $71,000

Direct labor 75,000 86,500

Equipment depreciation 5,000 5,000

Indirect labor 7,500 8,600

Indirect materials 9,000 9,600

Rent and insurance 12,000 13,000

Instructions

Prepare a performance budget report for Campbell Clothing for the year.

 

Ex. 193

Data concerning manufacturing overhead for Wilson Industries are presented below. The Mixing Department is a cost center.

An analysis of the overhead costs reveals that all variable costs are controllable by the manager of the Mixing Department and that 50% of supervisory costs are controllable at the department level.


Ex. 193 (Cont.)

The flexible budget formula and the cost and activity for the months of July and August are as follows:

Flexible Budget Per

Direct Labor Hour Actual Costs and Activity

July August

Direct labor hours 6,000 7,000

Overhead costs

Variable

Indirect materials $3.50 $ 20,500 $ 25,100

Indirect labor 6.00 39,500 40,700

Factory supplies 1.00 7,600 8,200

Fixed

Depreciation $20,000 15,000 15,000

Supervision 25,000 23,000 26,000

Property taxes 10,000 12,000 12,000

Total costs $117,600 $127,000

Instructions

(a) Prepare the responsibility reports for the Mixing Department for each month.

(b) Comment on the manager’s performance in controlling costs during the two month period.

 

Ex. 194

Strickland Corp.’s manufacturing overhead budget for the first quarter of 2013 contained the following data:

Variable Costs

Indirect materials $40,000

Indirect labor 24,000

Utilities 20,000

Maintenance 12,000


Ex. 194 (Cont.)

Fixed Costs

Supervisor’s salary $80,000

Depreciation 16,000

Property taxes 8,000

Actual variable costs for the first quarter were:

Indirect materials $37,200

Indirect labor 26,400

Utilities 21,000

Maintenance 10,600

Actual fixed costs were as expected except for property taxes which were $9,000. All costs are considered controllable by the department manager except for the supervisor’s salary.

Instructions

Prepare a manufacturing overhead responsibility performance report for the first quarter.

 

Ex. 195

The Deluxe Division, a profit center of Riley Manufacturing Company, reported the following data for the first quarter of 2013:

Sales $9,000,000

Variable costs 6,300,000

Controllable direct fixed costs 1,200,000

Noncontrollable direct fixed costs 530,000

Indirect fixed costs 300,000

Instructions

(a) Prepare a performance report for the manager of the Deluxe Division.

(b) What is the best measure of the manager’s performance? Why?

(c) How would the responsibility report differ if the division was an investment center?

 

Ex. 196

Danner Co. has three divisions which are operated as profit centers. Actual operating data for the divisions listed alphabetically are as follows.

Operating Data Women’s Shoes Men’s Shoes Children’s Shoes

Contribution margin $280,000 (3) $220,000

Controllable fixed costs 130,000 (4) (5)

Controllable margin (1) $ 90,000 96,000

Sales 800,000 480,000 (6)

Variable costs (2) 330,000 250,000

Instructions

(a) Compute the missing amounts. Show computations.

(b) Prepare a responsibility report for the Women’s Shoe Division assuming (1) the data are for the month ended June 30, 2013, and (2) all data equal budget except variable costs which are $20,000 over budget.

 


Ex. 197

The Real Estate Products Division of McKenzie Co. is operated as a profit center. Sales for the division were budgeted for 2013 at $1,250,000. The only variable costs budgeted for the division were cost of goods sold ($610,000) and selling and administrative ($80,000). Fixed costs were budgeted at $130,000 for cost of goods sold, $120,000 for selling and administrative and $95,000 for noncontrollable fixed costs. Actual results for these items were:

Sales $1,175,000

Cost of goods sold

Variable 545,000

Fixed 140,000

Selling and administrative

Variable 82,000

Fixed 100,000

Noncontrollable fixed 105,000

Instructions

(a) Prepare a responsibility report for the Real Estate Products Division for 2013.

(b) Assume the division is an investment center, and average operating assets were $1,200,000. Compute ROI.

 


Ex. 198

The Pacific Division of Henson Industries reported the following data for the current year.

Sales $4,000,000

Variable costs 2,600,000

Controllable fixed costs 800,000

Average operating assets 5,000,000

Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the Pacific Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.

1. Increase sales by $400,000 with no change in the contribution margin percentage.

2. Reduce variable costs by $120,000.

3. Reduce average operating assets by 4%

Instructions

(a) Compute the return on investment (ROI) for the current year.

(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)

 


Ex. 199

The Medford Burkett Company uses a responsibility reporting system to measure the performance of its three investment centers: Planes, Taxis, and Limos. Segment performance is measured using a system of responsibility reports and return on investment calculations. The allocation of resources within the company and the segment managers’ bonuses are based in part on the results shown in these reports.

Recently, the company was the victim of a computer virus that deleted portions of the company’s accounting records. This was discovered when the current period’s responsibility reports were being prepared. The printout of the actual operating results appeared as follows.

Planes Taxis Limos

Service revenue $ ? $450,000 $ ?

Variable costs 5,000,000 ? 320,000

Contribution margin ? 180,000 380,000

Controllable fixed costs 1,500,000 ? ?

Controllable margin ? 70,000 176,000

Average operating assets 25,000,000 ? 1,600,000

Return on investment 12% 10% ?

Instructions

Determine the missing pieces of information above.

 

 

Ex. 200

Perez Corp. reported the following:

Beginning of year operating assets $3,200,000

End of year operating assets 3,000,000

Contribution margin 1,000,000

Sales 5,000,000

Controllable fixed costs 643,000

Its required return is 10%.

Instructions

Compute the company’s ROI.

 

Ex. 201

Lombard, Inc. has two investment centers and has developed the following information:

Department A Department B

Departmental controllable margin $120,000 ?

Average operating assets ? $400,000

Sales 800,000 250,000

ROI 10% 12%

Instructions

Answer the following questions about Department A and Department B.

1. What was the amount of Department A’s average operating assets? $____________.

2. What was the amount of Department B’s controllable margin? $____________.

3. If Department B is able to reduce its operating assets by $100,000, Department B’s new ROI would be ____________.

4. If Department A is able to increase its controllable margin by $60,000 as a result of reducing variable costs, Department A’s new ROI would be _________________.

 

Ex. 202

The Atlantic Division of Stark Productions Company reported the following results for 2013:

Sales $4,000,000

Variable costs 3,200,000

Controllable fixed costs 300,000

Average operating assets 2,500,000

Management is considering the following independent alternative courses of action in 2014 in order to maximize the return on investment for the division.

1. Reduce controllable fixed costs by 10% with no change in sales or variable costs.

2. Reduce average operating assets by 10% with no change in controllable margin.

3. Increase sales $500,000 with no change in the contribution margin percentage.

Instructions

(a) Compute the return on investment for 2013.

(b) Compute the expected return on investment for each of the alternative courses of action.

 

Ex. 203

Data for the following subsidiaries of Olive Manufacturing, which are operated as investment centers, are as follows:

Fleming Company Oak Company

Sales $3,000,000 $2,000,000

Controllable margin (1) (3)

Average operating assets (2) 4,000,000

Contribution margin 1,200,000 800,000

Controllable fixed costs 500,000 200,000

Return on Investment 10% (4)

Instructions

Compute the missing amounts using the ROI formula.

 


Ex. 204

The data for an investment center is given below.

1/1/12 12/31/12

Current assets $ 300,000 $ 700,000

Plant assets 3,000,000 4,000,000

Idle plant assets 250,000 330,000

Land held for future use 1,200,000 1,200,000

The controllable margin is $760,000.

Instructions

What is the return on investment for the center for 2013?

 

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