1.

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	$	82,800	Number of employees
Utilities		53,000	Square feet occupied
Insurance		24,000	Value of assets in use
Total	$	159,800

Departmental data for the companys recent reporting period follow.

Department	Employees				Square Feet				Asset Values
Materials		28				39,000				$	12,600
Personnel		7				6,500					3,150
Manufacturing		63				65,000					31,500
Packaging		42				19,500					15,750
Total		140				130,000				$	63,000

1. Use this information to allocate each of the three indirect expenses across the four departments. 2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

Use this information to allocate each of the three indirect expenses across the four departments.

Supervision expenses	Allocation Base	Percent of Allocation Base			Cost to be Allocated	Allocated Cost
Department		Numerator	Denominator	% of Total
Materials				0
Personnel				0
Manufacturing				0		0
Packaging				0		0
Totals				0
Utilities	Allocation Base	Percent of Allocation Base			Cost to be Allocated	Allocated Cost
Department		Numerator	Denominator	% of Total
Materials				0
Personnel				0
Manufacturing				0		0
Packaging				0		0
Totals				0
Insurance	Allocation Base	Percent of Allocation Base			Cost to be Allocated	Allocated Cost
Department		Numerator	Denominator	% of Total
Materials				0
Personnel				0
Manufacturing				0		0
Packaging				0		0
Totals				0

Supervision	Utilities	Insurance	Total
Materials				$0
Personnel				0
Manufacturing				0
Packaging				0
Totals	$0	$0	$0	$0

2.

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering eliminating 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, 2017
	Acoustic			Electric
Sales	$	102,800		$	84,400
Cost of goods sold		44,275			47,250
Gross profit		58,525			37,150
Operating expenses
Advertising expense		5,045			4,260
Depreciation expenseequipment		10,140			8,560
Salaries expense		19,800			17,400
Supplies expense		2,010			1,760
Rent expense		7,005			6,030
Utilities expense		2,955			2,650
Total operating expenses		46,955			40,660
Net income (loss)	$	11,570		$	(3,510	)

1. Prepare a departmental contribution report that shows each departments contribution to overhead.

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering eliminating 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, 2017
	Acoustic			Electric
Sales	$	102,800		$	84,400
Cost of goods sold		44,275			47,250
Gross profit		58,525			37,150
Operating expenses
Advertising expense		5,045			4,260
Depreciation expenseequipment		10,140			8,560
Salaries expense		19,800			17,400
Supplies expense		2,010			1,760
Rent expense		7,005			6,030
Utilities expense		2,955			2,650
Total operating expenses		46,955			40,660
Net income (loss)	$	11,570		$	(3,510	)

1. Prepare a departmental contribution report that shows each departments contribution to overhead.

WHOLESALE GUITARS
Income Statement Showing Departmental Contribution to Overhead
For Year Ended December 31, 2017
	Acoustic Dept.	Electric Dept.	Combined
Direct expenses
Total direct expenses	0	0	0
Departmental contributions to overhead	$0	$0	$0
Indirect expenses
Total indirect expenses			0
			$0

3.

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

Investment Center

Sales

Income

Average Invested Assets

Electronics

$

45,000,000

$

3,420,000

$

18,000,000

Sporting goods

25,200,000

2,520,000

14,000,000

1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 11% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted?

Return on Investment
	Choose Numerator:	/	Choose Denominator:	=	Return on Investment
		/		=	Return on Investment
Electronics		/		=	0
Sporting Goods		/		=	0
Which department is most efficient at using assets to generate returns for the company?

Investment Center	Electronics	Sporting Goods
Net income
Target net income
Residual income
Which department is most efficient at using assets to generate returns for the company?

Should the new investment opportunity be accepted?