Budget Performance Reports for Cost Centers

Partially completed budget performance reports for Delmar Company, a manufacturer of light duty motors, follow:

Plant	Actual	Budget	Over Budget	(Under) Budget
Eastern Region	$509,000	$509,000		$0
Central Region	362,800	366,500		(3,700)
Western Region	(g)	(h)	(i)
	$(j)	$(k)	$(l)	$(3,700)

Department	Actual	Budget	Over Budget	(Under) Budget
Chip Fabrication	$(a)	$(b)	$(c)
Electronic Assembly	92,570	91,380	1,190
Final Assembly	145,040	146,210		$(1,170)
	$(d)	$(e)	$(f)	$(1,170)

Cost	Actual	Budget	Over Budget	(Under) Budget
Factory wages	$31,250	$29,210	$2,040
Materials	58,520	58,930		$(410)
Power and light	3,940	3,310	630
Maintenance	9,630	8,790	840
	$103,340	$100,240	$3,510	$(410)

a. Complete the budget performance reports by determining the correct amounts for the lettered spaces (a-l) as marked above.

Amount	Amount
a. $fill in the blank 1	g. $fill in the blank 2
b. $fill in the blank 3	h. $fill in the blank 4
c. $fill in the blank 5	i. $fill in the blank 6
d. $fill in the blank 7	j. $fill in the blank 8
e. $fill in the blank 9	k. $fill in the blank 10
f. $fill in the blank 11	l. $fill in the blank 12

b. Complete the following memo to Randi Wilkes, vice president of production for Delmar Company, explaining the performance of the production division for June.

MEMO To: Randi Wilkes, Vice President of Production

The fill in the blank 1 of 4

Eastern RegionCentral RegionWestern Region

plant has experienced a budget overrun. Its budget reveals that the fill in the blank 2 of 4

Chip FabricationElectronic AssemblyFinal Assembly

Department caused the majority of the budget overrun. The supervisor of the fill in the blank 3 of 4

Chip FabricationElectronic AssemblyFinal Assembly

Department should investigate the reasons for the budget overruns in fill in the blank 4 of 4

factory wages, materials, and maintenancematerials, power and light, and maintenancefactory wages, power and light, and maintenance

.

2. EX.24.02.ALGO

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Divisional income statements

The following data were summarized from the accounting records for Gonzaga Industries Inc. for the year ended November 30, 20Y8:

Cost of goods sold:	Amount	Support department allocations:	Amount
Commercial Division	$386,730	Commercial Division	$52,740
Residential Division	196,880	Residential Division	34,100

Administrative expenses:	Amount	Sales:	Amount
Commercial Division	$70,310	Commercial Division	$585,950
Residential Division	70,310	Residential Division	351,570

Prepare divisional income statements for Gonzaga Industries Inc.

Line Item Description	Commercial Division	Residential Division
Accounts payableAdministrative expensesOperating income before support department allocationsSalesSupport department allocations	$- Select -	$- Select -
Accounts payableAdministrative expensesCost of goods soldGross profitSupport department allocations	- Select -	- Select -
Accounts payableGross profitOperating incomeSalesSupport department allocations	$- Select -	$- Select -
Accounts payableAdministrative expensesCost of goods soldGross profitSupport department allocations	- Select -	- Select -
Accounts payableCost of goods soldOperating income before support department allocationsSalesSupport department allocations	$- Select -	$- Select -
Accounts payableGross profitLoss from operationsSalesSupport department allocations	- Select -	- Select -
Gross profitLoss from operationsOperating incomeOperating income before support department allocationsSupport department allocations	$- Select -	$- Select -

3. EX.24.04

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Cost Drivers for Support Department Allocations

For each of the following support departments, select the cost driver listed that is most appropriate for allocating support department costs to responsible units. Your answer should include the number of the cost driver only.

Cost drivers to choose from:

1. Number of conference attendees 2. Number of computers 3. Number of employees trained 4. Number of cell phone minutes used 5. Number of sales invoices 6. Number of purchase requisitions 7. Number of travel claims 8. Number of data analysis requests

Support Department	Cost Driver
a. Accounts Receivable	fill in the blank 1
b. Central Purchasing	fill in the blank 2
c. Computer Support	fill in the blank 3
d. Conferences	fill in the blank 4
e. Employee Travel	fill in the blank 5
f. Data Analytics	fill in the blank 6
g. Telecommunications	fill in the blank 7
h. Training	fill in the blank 8

4. EX.24.05.ALGO

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Cost Department Allocations

In divisional income statements prepared for Demopolis Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $52,356, and the Purchasing Department had expenses of $23,320 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

Line Item Description	Residential	Commercial	Government Contract
Sales	$487,000	$646,000	$1,483,000
Number of employees:
Weekly payroll (52 weeks per year)	145	80	85
Monthly payroll	34	45	32
Number of purchase requisitions per year	2,200	1,600	1,500

Required:

a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division.

Line Item Description	Residential	Commercial	Government Contract	Total
Number of payroll checks:
Weekly payroll 52	fill in the blank 1	fill in the blank 2	fill in the blank 3
Monthly payroll 12	fill in the blank 4	fill in the blank 5	fill in the blank 6
Total	fill in the blank 7	fill in the blank 8	fill in the blank 9	fill in the blank 10
Number of purchase requisitions per year	fill in the blank 11	fill in the blank 12	fill in the blank 13	fill in the blank 14

b. Using the cost driver information in (a), determine the annual amount of payroll and purchasing costs allocated to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. Do not round interim calculations. Round your answers to two decimal places.

Department	Allocation Rate
Payroll Department	$fill in the blank 15 per distribution
Purchasing Department	$fill in the blank 16 per requisition

Department	Residential	Commercial	Government Contract	Total
Support department allocations:
Payroll Department	$fill in the blank 17	$fill in the blank 18	$fill in the blank 19	$fill in the blank 20
Purchasing Department	fill in the blank 21	fill in the blank 22	fill in the blank 23	fill in the blank 24
Total	$fill in the blank 25	$fill in the blank 26	$fill in the blank 27

c. Residential's support department allocations are fill in the blank 1 of 3

higherlower

than the other two divisions because Residential is a fill in the blank 2 of 3

heavylight

user of support department services. Residential has many employees on a weekly payroll, which translates into a fill in the blank 3 of 3

largersmaller

number of payroll transactions.

5. EX.24.07.ALGO

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Divisional income statements with support department allocations

Horton Technology has two divisions, Consumer and Commercial, and two corporate support departments, Tech Services and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows:

Line Item Description	Amount
Tech Services Department	$822,000
Purchasing Department	372,500
Other corporate administrative expenses	514,000
Total expense	$1,708,500

The other corporate administrative expenses include officers' salaries and other expenses required by the corporation. The Tech Services Department allocates costs to the divisions based on the number of computers in the department, and the Purchasing Department allocates costs to the divisions based on the number of purchase orders for each department. The services used by the two divisions are as follows:

Line Item Description	Tech Services	Purchasing
Consumer Division	370 computers	5,200 purchase orders
Commercial Division	230	9,700
Total	600 computers	14,900 purchase orders

The support department allocations of the Tech Services Department and the Purchasing Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:

Line Item Description	Consumer	Commercial
Revenues	$7,490,000	$6,461,800
Cost of goods sold	4,161,100	3,262,900
Operating expenses	1,469,200	1,615,300

Prepare the divisional income statements for the two divisions. Do not round your interim calculations.

Line Item Description	Consumer Division	Commercial Division
Gross profitCashOperating expensesOperating incomeRevenues	$- Select -	$- Select -
CashCost of goods soldGross profitOperating incomeTech service department	- Select -	- Select -
CashGross profitLoss from operationsOperating expensesRevenues	$- Select -	$- Select -
CashLoss from operationsOperating expensesOperating incomePurchasing department	- Select -	- Select -
Operating income before support department allocations	$Operating income before support department allocations	$Operating income before support department allocations
Support department allocations:
CashCost of goods soldOperating expensesOperating incomeTech service department	$- Select -	$- Select -
CashGross profitOperating expensesOperating incomePurchasing department	- Select -	- Select -
Total support department allocations	$Total support department allocations	$Total support department allocations
Gross profitOperating incomeOperating income before service department chargesLoss from operations	$- Select -	$- Select -

6. EX.24.10.ALGO

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Question Content Area

Return on investment

The operating income and the amount of invested assets in each division of Stewart Industries are as follows:

Line Item Description	Operating Income	Invested Assets
Retail Division	$136,800	$720,000
Commercial Division	90,200	410,000
Data Analytics Division	108,000	720,000

a. Compute the return on investment for each division. (Round to the nearest whole percentage.)

Division	Percent
Retail Division	fill in the blank 1 %
Commercial Division	fill in the blank 2 %
Data Analytics Division	fill in the blank 3 %

b. Which division is the most profitable per dollar invested?

Commercial DivisionData Analytics DivisionRetail Division

7. EX.24.11.ALGO

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Residual income

The operating income and the amount of invested assets in each division of Stewart Industries are as follows:

	Operating Income	Invested Assets
Retail Division	$132,000	$600,000
Commercial Division	128,000	640,000
Data Analytics Division	64,600	380,000

Assume that management has established a 10% minimum acceptable return for invested assets.

a. Determine the residual income for each division.

Line Item Description	Retail Division	Commercial Division	Data Analytics Division
Operating income	$132,000	$128,000	$64,600
Minimum amount of operating income	fill in the blank 1	fill in the blank 2	fill in the blank 3
Residual income	$fill in the blank 4	$fill in the blank 5	$fill in the blank 6

b. Which division has the most residual income?

Commercial DivisionData Analytics DivisionRetail Division

8. EX.24.13.ALGO

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Profit margin, investment turnover, and return on investment

The condensed income statement for the Consumer Products Division of Hydra Industries Inc. is as follows (assuming no support department allocations):

Line Item Description	Amount
Sales	$516,000
Cost of goods sold	(232,200)
Gross profit	$283,800
Administrative expenses	(129,000)
Operating income	$154,800

The manager of the Consumer Products Division is considering ways to increase the return on investment.

a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $1,290,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place.

Line Item Description	Answer
Profit margin	fill in the blank 1 %
Investment turnover	fill in the blank 2
Return on investment	fill in the blank 3 %

b. If expenses could be reduced by $25,800 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division? Round the investment turnover to one decimal place.

Line Item Description	Answer
Profit margin	fill in the blank 4 %
Investment turnover	fill in the blank 5
Return on investment	fill in the blank 6 %

9. EX.24.18.ALGO

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Decision on transfer pricing

Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $175 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $145 per unit.

Assume that a transfer price of $166 has been established and that 47,100 units of materials are transferred, with no reduction in the Components Division's current sales.

a. How much would Ziegler Inc.'s total operating income increase? fill in the blank 1 of 1$

b. How much would the Instrument Division's operating income increase? fill in the blank 1 of 1$

c. How much would the Components Division's operating income increase? fill in the blank 1 of 1$

d. Any transfer price will cause the total income of the company to fill in the blank 1 of 2

decreaseincrease

, as long as the supplier division capacity is fill in the blank 2 of 2

usednot used

toward making materials for products that are ultimately sold to the outside.