41. The specific reason (specific to service department allocation) why the company would use budgeted costs to allocate to user departments rather than actual costs is: (do NOT say that they do not know the costs yet).

41.  _______________________________________________________________________ _______________________________________________________________________ 

42. In deciding how to allocate the costs of the Help Desk function, what would be the most logical allocation base, given the information above?

     _______________________________________________ 

43. What characteristic does this allocation base possess that makes it an appropriate method to distribute these costs? (Why is this a good allocation base?)

     __________________________________________________________ 

44. The "charge rate" for technology support services at LOHREY is: (include units) $____________________

45. Why would the company operate a Help Desk department, as opposed to allowing the divisions to handle this function separately on their own?

     ______________________________________________________________________ ______________________________________________________________________ 

46. The amount of technology support costs allocated to the divisions A and B would be:

    Division A $_______________ Division B $_________________

47. The income from operations AFTER service department charges for the two divisions would be:

    Division A $________________ Division B $________________

48. The investment turnover for the Division A would be: (round to 2 decimal places)

    _____________ times

49. The profit margin of the Division B is:

    __________________% (round to nearest percent)

50. Assume that the company has a potential investment project that will require an investment of $1,500,000 and has a projected return of $500,000. Each division would split the investment and income equally. If divisional performance is based on ROI, which divisional managers would be in favor of this proposal?

     _______________________________ 

51. Management has determined that its average cost of capital is 10% and is using this as a benchmark or hurdle rate evaluate the divisional performance. They wish to use the residual income method to determine evaluate divisional performance According to this measure, which division is performing better and by how much.

 ____________________________________________ 

52. The principal cause of the lower turnover for the Division A is: ____________________________________________________________________________ ____________________________________________________________________________

LOHREY Corporation is a decentralized company, divided into 2 divisions, Division A and Division B. The centralized Help Desk of LOHREY budgeted expenses of $300,000 and 10,000 hours of service for 2011. It was estimated that Division A would use 4,500 hours of Technology Support Department service, while Division B budgeted 5,500 hours of Technology Support Department service. 9,800 hours were actually used, 4,900 of which were attributable to Division A. Additional information for the company's two divisions are as follows: Division Division Sales Cost of goods sold Selling expenses Operating income before service department charges $3,200,000 1,610,000 264,000 $3,305,000 1,764,000 235,000 $1,326,000 $1,306,000 Average Invested assets $3,500,000 $2,000,000