P10-50B 1-3

P10-48A Evaluate subunit performance (Learning Objectives 2 & 6) 642 CHAPTER 10 One subunit of Carlton Sports Company had the following financial results last month Carlton Sports Marente hity phone company reperim Sports Subunit For the Month Variance Variance Percentage 6 Sales 7 Less: Variable expenses 8 Contribution margin 9 Less: Direct fixed expenses 10 Segment margin 11 Less: Common fixed expenses 12 Operating income 13 Actual 546,000 388,500 157,500 52,050 105,450 38,500 66,950 Budgeted 500,000 375,000 125,000 50,000 75,000 25,000 50,000 $ $ "Be sure to indicate whether each variance is favorable (F) or unfavorable (U). RE 1. 2. Requirements 1. Complete the performance evaluation report for this subunit (round to three decimal places). 2. Based on the data presented, what type of responsibility center is this subunit? 3. Which items should be investigated if part of the management's decision criteria is to investigate variances equal to or exceeding $13,500 and exceeding 16% (both cri- teria must be met)? 4. Should only unfavorable variances be investigated? Explain. 5. Is it possible that the variances are due to a higher than-expected sales volume? Explain. 6. Do you think management will place equal weight on each of the $13,500 variances? 3- P10-5 Explain. d 7. Which balanced Scorecard perspective is being addressed through this performance report? In your opinion, is this performance report a leed or lag indicator? Explain. 8. Give one key performance indicator for the other three balanced Scorecard perspec tives. Indicate which perspective is being addressed by the indicator you list. Are they lead or lag indicators? Explain. PROBLEMS Group B P10-49B Prepare a budget with different volumes for planning (Learning Objective 5) Popping Bubbles produces multicolored bubble solution used for weddings and other events. Popping Bubbles' plant capacity is 72,500 kits. If actual volume exceeds 72,500 kits the company must expand the plant. In that case, salaries will increase by 10%, depreciar tion by 15%, and rent by $7,000. Fixed utilities will be unchanged by any volume increase The company's master budget income statement for October follows. It is based on expected sales volume of 65,000 bubble kits. Performance Evaluation 643 POPPING BUBBLES, INC. Master Budget Income Statement Month Ended October 31 $188,500 78,000 13,000 13,000 Sales revenue Variable expenses: Cost of goods sold Sales commissions Utility expense Fixed expenses: Salary expense. Depreciation expense Rent expense Utility expense Total expenses. Operating income.. 33,000 18,000 11,000 5,000 $171.000 S. 17.500 CHAPTER the X-axis. Requirements 1. Prepare flexible budget income statements for the company, showing output levels of 65,000, 70,000, and 75,000 kits. 2. Graph the behavior of the company's total costs. Use total costs on the y-axis and vol- ume (in thousands of bubble kits) 3. Why might Popping Bubbles' managers want to see the graph you prepared in Re- quirement 2 as well as the columnar format analysis in Requirement 1? What is the disadvantage of the graphic approach? P10-50B Prepare and interpret a performance report (Learning Objective 2) Refer to the Popping Bubbles' data in P10-49B. The company sold 70,000 bubble kits during March and its actual operating income was as follows: POPPING BUBBLES, INC. Master Budget Income Statement Month Ended October 31 $211,000 $ 84,500 15,500 14,000 Sales revenue. Variable expenses: Cost of goods sold Sales commissions Utility expense Fixed expenses: Salary expense. Depreciation expense Rent expense. Utility expense Total expenses Operating income. 35,100 18,000 10,550 5,000 $182,650 $ 28,350 644 CHAPTER 10 Requirements 1. Prepare an income statement performance report for October. 2. What accounts for most of the difference between actual operating income and was 3. What is Popping Bubbles' master budget variance for operating income? Explain why the income statement performance report provides Popping Bubbles managers with more useful information than the simple master budget variance. What insights can ter budget operating income? Popping Bubbles' managers draw from this performance report? P10-51B Evaluate divisional performance (Learning Objective 3) Sacramento Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through stores like Sears, Home Depot, and Lowe's), Automotive (sales to auto manufacturers), International, and Administration. The following is selected hypothetical divisional informa- tion for its two largest divisions: Paint Stores and Consumer (in thousands of dollars). Sales Total Assets Paint Stores .... $3,880,000 $1,300,000 Operating Income $465,600 $221,000 $1,552,000 $2,600,000 Consumer .............. Assume that management has specified a 21% target rate of return. Requirements Round all calculations to four decimal places. 1. Calculate each division's ROI. 2. Calculate each division's sales margin. Interpret your results. 3. Calculate each division's capital turnover. Interpret your results. 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results