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financial managerial accounting

Questions and Answers of Financial Managerial Accounting

How does the concept of predominant as opposed to that of absolute control apply to responsibility accounting?
Responsibility report Bonn Department Store is divided into three major departments: Men’s Clothing, Women’s Clothing, and Home Furnishings. Each of these three departments is supervised by a
Income statement for internal use Cummings Company has provided the following 2006 data Required Prepare in good form a budgeted and actual income statement for internal use. Separate operating
Evaluating a cost center including flexible budgeting concepts Pittman Medical Equipment Company makes a blood pressure measuring kit. Jay Thrasher is the production manager. The production
Evaluating a profit center Janet Handley, the president of Washington Toys Corporation, is trying to determine this year’s pay raises for the store managers. Washington Toys has seven stores in the
Return on investment An investment center of Garmon Corporation shows an operating income of $3,600 on total operating assets of $15,000.Required Compute the return on investment.
Return on investment Carson Company calculated its return on investment as 15 percent. Sales are now $180,000, and the amount of total operating assets is $300,000.Requireda. If expenses are reduced
Residual income Gary Corporation has a desired rate of return of 10 percent. Rick Wayne is in charge of one of Gary’s three investment centers. His center controlled operating assets of $9,000,000
Residual income Hollis Cough Drops operates two divisions. The following information pertains to each division for 2005.Requireda. Compute each division’s residual income.b. Which division
Return on investment and residual income Required Supply the missing information in the following table for McDow Company.
Comparing return on investment with residual income The Milwee Division of Sanford Corporation has a current ROI of 20 percent. The company target ROI is 15 percent. The Milwee Division has an
Return on investment and residual income American Home Maintenance Company (AHMC) earned operating income of $9,460,800 on operating assets of $52,560,000 during 2008. The Tree Cutting Division
Transfer pricing Gibson Company has two divisions, A and B. Division A manufactures 6,000 units of product per month. The cost per unit is calculated as follows.410 Chapter 9 L.O. 8 Division B uses
Transfer pricing and fixed cost per unit The Potomac Parts Division of East Company plans to set up a facility with the capacity to make 5,000 units annually of an electronic computer part. The
Determining controllable costs Steve Reitz is the manager of the production department of Faraino Corporation. Faraino incurred the following costs during 2007.Required Prepare a list of expenditures
Controllability, responsibility, and balanced scorecard Tracie Buckley manages the production division of Yates Corporation. Ms. Buckley’s responsibility report for the month of August follows.The
Performance reports and evaluation Duvall Corporation has four divisions: the assembly division, the processing division, the machining division, and the packing division. All four divisions are
Comparing return on investment and residual income Slatten Corporation operates three investment centers. The following financial statements apply to the investment center named Kent
Return on investment Albano Corporation’s balance sheet indicates that the company has $400,000 invested in operating assets. During 2006, Albano earned operating income of $60,000 on $800,000 of
Return on investment and residual income Quest Company has operating assets of $20,000,000. The company’s operating income for the most recent accounting period was $2,500,000. The Western Division
Return on investment and residual income Beacon Technologies, Inc. (BTI), has three divisions. BTI has a desired rate of return of 13 percent.The operating assets and income for each division are as
Transfer pricing Chappel Radio Corporation is a subsidiary of Franklin Companies. Chappel makes car radios that it sells to retail outlets. It purchases speakers for the radios from outside suppliers
Organizational chart and responsibilities Yesterday, Connally Corporation’s board of directors appointed Paulette Gaiter as the new president and chief executive officer. This morning, Ms. Gaiter
Responsibility report Connally Corporation divides its operations into three regions: American, European, and Asian. The following items appear in the company’s responsibility report.European
Organizational chart and controllable cost Mark Dailey, Connally Corporation vice president of research and development, has overall responsibility for employees with the following
Income statement for internal use Kahil Company has provided the following data for 2007:Requireda. Prepare in good form a budgeted and actual income statement for internal use. Separate operating
Evaluating a cost center (including flexible budgeting concepts)Glen Howell, president of Howell Door Products Company, is evaluating the performance of Keith Ireland, the plant manager, for the last
Evaluating a profit center Roberta Juliano, president of World Travel Company, a travel agency, is seeking a method of evaluating her seven branches. Each branch vice president is authorized to hire
Computing return on investment A Hopkins Corporation investment center shows an operating income of $60,000 and an investment in operating assets of $480,000.Required Compute the return on investment.
Return on investment With annual sales of $5,000,000 and operating assets of $2,500,000, Calder Company achieved a 10 percent ROI.Requireda. If Calder reduces expenses by $50,000 and sales remain
Computing residual income Berry Corporation’s desired rate of return is 15 percent. North Division, one of Berry’s five investment centers, earned an operating income of $3,600,000 last year. The
Computing residual income Standard Oil Change operates two divisions. The following pertains to each division for 2007:Requireda. Compute each division’s residual income.b. Which division increased
Supply missing information regarding return on investment and residual income Required Supply the missing information in the following table for Ashton Company
Contrasting return on investment with residual income The St. Louis Division of Missouri Garage Doors, Inc., is currently achieving a 16 percent ROI. The company’s target ROI is 10 percent. The
Return on investment and residual income Evergreen Insurance Company (EIC) earned operating income of $58,712,000 on operating assets of$372,690,000 during 2007. The Automobile Insurance Division
Transfer pricing Boone Company makes household water filtration equipment. The Aquafresh Division manufactures filters. The Sweet Water Division then uses the filters as a component of the final
Transfer pricing and fixed cost per unit The Murdock Division of Yesso Company currently produces electric fans that desktop computer manufacturers use as cooling components. The Hart Division, which
Determining controllable costs At a professional conference just a few days ago, Jason Callie, the president of Morrow Corporation, learned how the concept of controllability relates to performance
Controllability, responsibility, and balanced scorecard Gerald Neumeier, president of Friedman Corporation, evaluated the performance report of the company’s production department. Mr. Neumeier was
Performance reports and evaluation The mortgage division of Mohen Financial Services, Inc., is managed by a vice president who supervises three regional operations. Each regional operation has a
Different types of responsibility center Seaborn Industries, Inc., has five different divisions; each is responsible for producing and marketing a particular product line. The electronic division
Comparing return on investment and residual income Taite Corporation operates three investment centers. The following financial statements apply to the investment center named Issac
Return on investment Loftin Corporation’s balance sheet indicates that the company has $600,000 invested in operating assets. During 2007, Loftin earned $96,000 of operating income on $1,920,000 of
Return on investment and residual income Perryman Company has operating assets of $36,000,000. The company’s operating income for the most recent accounting period was $4,070,000. The Denton
Return on investment and residual income Tiger Trading Company (TTC) has three divisions. TTC has a desired rate of return of 14%. The operating assets and income for each division are as follows:TTC
Transfer pricing ChengKung Electronics Corporation makes a modem that it sells to retail stores for $150 each. The variable cost to produce a modem is $70 each; the total fixed cost is $10,000,000.
Business Applications Case Analyzing segments at Coca-Cola The following excerpt is from Coca-Cola Company’s 2004 annual report filed with the SEC.Management evaluates the performance of its
Group Assignment Return on investment versus residual income Bellco, a division of Becker International Corporation, is operated under the direction of Antoin Sedatt. Bellco is an independent
Research Assignment Centralized or decentralized management The Curious Accountant story in this chapter related how one company, The Home Depot, grew from a small business into a large business in
Writing Assignment Transfer pricing Green Lawn Mower, Inc., recently acquired Hallit Engines, a small engine manufacturing company.Green’s president believes in decentralization and intends to
Ethical Dilemma Manipulating return on investment and residual income The October 5, 1998, issue of Business Week includes the article “Who Can You Trust?” authored by Sarah Bartlett. Among other
Spreadsheet Assignment Using Excel Waldon Corporation’s balance sheet shows that the company has $600,000 invested in operating assets. During 2006, Waldon earned $120,000 on $960,000 of sales. The
Spreadsheet Assignment Mastering Excel The Pillar Manufacturing Company has three identified levels of authority and responsibility. The organization chart as of December 31, 2007, appears as
Identify cost objects and cost drivers.
Distinguish direct costs from indirect costs.
Allocate indirect costs to cost objects.
Select appropriate cost drivers for allocating indirect costs.
Allocate costs to solve timing problems.
Allocate joint product costs.
Recognize the effects of cost allocation on employee motivation.
Allocate service department costs to operating departments (Appendix).
Allocating costs between divisions Drake Services Company (DSC) has 40 employees, 28 of whom are assigned to Division A and 12 to Division B. DSC incurred $240,000 of fringe benefits cost during
Direct versus indirect costs Oak Mountain Construction Company is composed of two divisions: (1) Home Construction and(2) Commercial Construction. The Home Construction Division is in the process of
Allocating overhead cost among products Tawana Hats Corporation manufactures three different models of hats: Vogue, Beauty, and Deluxe.Donna expects to incur $750,000 of overhead cost during the next
Allocating overhead costs among products Flemming Company makes three products in its factory: plastic cups, plastic tablecloths, and plastic bottles. The expected overhead costs for the next fiscal
Allocating costs among products Calvin Construction Company expects to build three new homes during a specific accounting period.The estimated direct materials and labor costs are as follows.Assume
Allocating to smooth cost over varying levels of production Production workers for Gomez Manufacturing Company provided 320 hours of labor in January and 480 hours in February. Gomez expects to use
Allocating to solve a timing problem Production workers for Miller Manufacturing Company provided 3,200 hours of labor in January and 2,000 hours in February. The company, whose operation is labor
Allocating to solve a timing problem Pacific Air is a large airline company that pays a customer relations representative $4,000 per month.The representative, who processed 1,000 customer complaints
Allocating overhead cost to accomplish smoothing Mensah Corporation expects to incur indirect overhead costs of $50,000 per month and direct manufacturing costs of $7 per unit. The expected
Allocating overhead for product costing Hinch Manufacturing Company produced 1,200 units of inventory in January 2007. It expects to produce an additional 8,400 units during the remaining 11 months
How the allocation of fixed cost affects a pricing decision Kyle Manufacturing Co. expects to make 24,000 chairs during the 2008 accounting period. The company made 4,000 chairs in January. Materials
Allocating joint product cost Terry Chemical Company makes three products, B217, K360, and X639, which are joint products from the same materials. In a standard batch of 300,000 pounds of raw
Human factor Jenkins Clinics provides medical care in three departments: internal medicine (IM), pediatrics (PD), and obstetrics gynecology (OB). The estimated costs to run each department
Allocating a service center cost to operating departments York Corporation’s computer services department assists two operating departments in using the company’s information system effectively.
Allocating costs of service centers to operating departments—step method Wendel Health Care Center, Inc., has three clinics servicing the Birmingham metropolitan area. The company’s legal
Allocating costs of service centers to operating departments—direct method Napper Trust Corporation has two service departments: actuary and economic analysis. Napper also has three operating
Cost accumulation and allocation Park Manufacturing Company makes two different products, M and N. The company’s two departments are named after the products; for example, Product M is made in
Selecting an appropriate cost driver (What is the base?)The Margo School of Vocational Technology has organized the school training programs into three departments. Each department provides training
Cost allocation in a service industry Hallit Airlines is a small airline that occasionally carries overload shipments for the overnight delivery company Never-Fail, Inc. Never-Fail is a
Cost allocation in a manufacturing company Elridge Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality
Fairness in the allocation process Kabila Manufacturing Company uses two departments to make its products. Department I is a cutting department that is machine intensive and uses very few employees.
Allocating indirect costs between products June Pasara is considering expanding her business. She plans to hire a salesperson to cover trade shows. Because of compensation, travel expenses, and booth
Allocating joint product cost Mahdi Chicken Corporation processes and packages chicken for grocery stores. It purchases chickens from farmers and processes them into two different products: chicken
Allocating service center costs—step method and direct method Gregory Information Services, Inc., has two service departments: human resources and billing.Gregory’s operating departments,
Allocating costs between divisions Siedman and Karr, LLP, has three departments: auditing, tax, and information systems. The departments occupy 2,500 square feet, 1,500 square feet, and 1,000 square
Direct versus indirect costs Mullin and Associates, LLP, is an accounting firm that provides two major types of professional services: (1) tax services as provided by the tax department and (2)
Allocating overhead costs among products Jackson Company manufactures three different sizes of automobile sunscreens: large, medium, and small. Jackson expects to incur $900,000 of overhead costs
Allocating overhead costs among products Doddy Company makes three models of computer disks in its factory: Zip100, Zip250, and Zip40. The expected overhead costs for the next fiscal year are as
Allocating costs among products Duong Company makes household plastic bags in three different sizes: Snack, Sandwich, and Storage.The estimated direct materials and direct labor costs are as
Allocating indirect cost over varying levels of production Gatch Company’s annual factory depreciation is $18,000. Gatch estimated it would operate the factory a total of 2,400 hours this year. The
Allocating indirect cost over varying levels of production On January 1, Litton Corporation paid the annual royalty of $576,000 for rights to use patented technology to make batteries for laptop
Allocating a fixed cost Last year, Wes Lloyd bought an automobile for $29,000 to use in his taxi business. He expected to drive the vehicle for 150,000 miles before disposing of it for $2,000. Wes
Allocating overhead cost to accomplish smoothing In 2007, Dupose Corporation incurred direct manufacturing costs of $20 per unit and manufacturing overhead costs of $135,000. The production activity
Allocating overhead for product costing Abbott Manufacturing Company produced 500 units of inventory in January 2006. The company expects to produce an additional 5,900 units of inventory during the
How fixed cost allocation affects a pricing decision Eisner Manufacturing Company expects to make 30,000 travel sewing kits during 2007. In January, the company made 1,800 kits. Materials and labor
Allocating joint product cost Lofton Food Corporation makes two products from soybeans: cooking oil and cattle feed. From a standard batch of 100,000 pounds of soybeans, Lofton produces 20,000 pounds
Human factor McKay Company builds custom sailboats. McKay currently has three boats under construction. The estimated costs to complete each boat are shown below.182 Chapter 4 L.O. 3, 6 L.O. 7 McKay
Allocating a service center cost to operating departments The administrative department of Alford Consulting, LLC, provides office administration and professional support to its two operating
Allocating service centers’ costs to operating departments—step method Young Consulting, LLP, has three operating departments: tax, estate planning, and small business. The company’s internal

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