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.