Complete problems 1, 2, 3 and 4 only. Additional problems have been included for practice although I strongly encourage you to work through them.

Each problem has two tabs. One tab contains the problem data and the other tab is a worksheet to complete the problem.

B-23.05 Victoria Falls Flour Mill Company started many years ago producing a single product. It has grown to produce many diverse consumer products ranging from foods to paper goods. Currently, the corporation is barely making a profit, and the price of its stock has languished. Division managers have traditionally been incentivized with stock options and awards. However, management is evaluating a new bonus plan based on segment profits within each division. Below are 20X4 facts about the Sugar Products Division, which generates 10% of overall corporate revenue. The Sugar Products Division has two key products - raw sugar and candy. Total sales of raw sugar and candy Traceable, controllable, sugar division fixed costs $ 45,750,000 10,250,000 Traceable, uncontrollable, sugar division fixed costs 3,600,000 Non-traceable, controllable, sugar division fixed costs 1,500,000 Non-traceable, uncontrollable, sugar division fixed costs 1,750,000 Variable selling, general, & administrative costs 9,050,000 Variable product costs General corporate expenses for all divisions 21,700,000 8,000,000 Prepare a contribution income statement for the aggregated Sugar Division (one column). If the division manager is to be evaluated on controllable contribution margin, would the Sugar Division manager appear to be entitled to a bonus? Name: Date: B-23.05 Section: 20X4 Divisional Report for Sugar Products Contribution Income Statement Sales Less: $ 45,750,000 Downhill Manufacturing produces snow skis in a two-step production process - cutting and laminating. The manufacturing center is supported by two service centers - a health clinic and a janitorial service. The following table reveals certain facts about each activity: Employees Square footage Cost incurred $ Health clinic Janitorial service Cutting department Laminating department 2 4 10 15 1,200 600 12,000 8,000 180,000 $ 125,000 $ 700,000 $ 800,000 (a) Using the direct method, allocate the service department costs to production. The clinic costs are to be allocated based on employees, and the janitorial costs are to be allocated based on the square footage. (b) Using the step method, allocate the service department costs to production. The clinic costs are to be allocated based on employees, and the janitorial costs are to be allocated based on the square footage. The first step will be to allocate clinic costs. The clinic employees maintain their space and do not rely upon the janitorial service. However, janitorial employees occasionally sustain an injury and utilize the clinic. (a) Janitorial service Health clinic Cost incurred $ 180,000 $ 125,000 Cutting department Laminating department $ $ 700,000 800,000 Clinic allocation - - - - Janitorial allocation - - - - Total cost $ - $ - $ - $ - Clinic allocations: Janitorial allocations: (b) Janitorial service Health clinic Cost incurred $ 180,000 $ 125,000 Cutting department Laminating department $ $ 700,000 800,000 Clinic allocation - - - - Janitorial allocation - - - - Total cost Clinic allocations: Janitorial allocations: $ - $ - $ - $ - Pure Comfort manufactures and sells mattresses with adjustable air chambers. Pure Comfort has been producing and selling approximately 500,000 units per year. Each units sells for $600, and there are no variable selling, general, or administrative costs. The company has been approached by a foreign supplier who wishes to provide the air compressor component for $90 per unit. Total annual manufacturing costs, including air compressors, is as follows: Direct materials $ 50,000,000 Direct labor 80,000,000 Variable factory overhead 16,000,000 Fixed factory overhead 35,000,000 If Pure Comfort outsources the air compressor, it is expected that direct materials will be reduced by 20%, direct labor by 30%, and variable factory overhead by 25%. There will be no reduction in fixed factory overhead. (a) Should Pure Comfort outsource the air compressor? (b) If outsourcing the air compressor will free up capacity, and enable Pure Comfort to increase production and sales to 600,000 units per year, would it make sense to outsource? (a) Internal Direct materials - $ - Direct labor - - Variable factory overhead - - Fixed factory overhead - - Outsourced compressors - - Total cost of each option (b) $ Outsource $ - $ - Summit Paintball Supply manufactures paintballs used by recreational gamers. The cost of producing a box of 2,500 paintballs is as follows: Direct materials Direct labor $ 12.50 6.25 Variable factory overhead 18.75 Fixed factory overhead 25.00 Variable selling, general, and administrative costs 18.75 Fixed selling, general, and administrative costs 4.00 The fixed factory overhead and fixed SG&A cost is allocated based on an assumption that the business will produce 400,000 boxes of paintballs per year. The company has capacity to produce 500,000 boxes without impacting either category of fixed cost. (a) The market for paintballs has become very competitive. Management has requested to know the break-even price that can be charged for a box of paintballs, assuming production and sale of 400,000 boxes. (b) Management has received a special order request for 100,000 boxes of "private label" paintballs. The order specifies a per box price of $75. How will profitability be impacted if the order is accepted? (a) (b) Air Mall produces a catalog that is placed in airline seatbacks during international flights. Passengers typically skim the catalog during flights and can buy selected merchandise from flight attendants, duty and tax free, while over international waters. Below is a report for a recent period: Total Sales $ Variable expense 2,600,000 $ 1,635,000 Contribution marg $ 965,000 Fixed expenses 900,000 Income (loss) Beverages $ 65,000 1,400,000 Jewelry $ 980,000 $ 420,000 120,000 500,000 $ 200,000 $ 300,000 $ Electronics 300,000 455,000 $ 300,000 $ - 700,000 245,000 300,000 $ (55,000) The fixed expense is the amount paid for printing the catalog and paying the airline to include the item in seatbacks. Management is evaluating discontinuing the sale of electronics products. Fixed costs will not change; however, jewelry sales are expected to increase by 30%. Determine if overall income will be improved if the sale of electronics products is ceased. B-24. Total Sales $ Beverages - Variable expense - Contribution marg $ - Fixed expenses - Income (loss) $ - $ Jewelry - $ $ - - $ $ $ Electronics - $ $ - - $ - B-24.04