Question 1:

Best Brew Manufacturing Company has two Service Departments-Custodial Services and Maintenance and three Production Departments-Brewing, Bottling, and Packaging. Best Brew allocates the cost of Custodial Services on the basis of square metres and Maintenance on the basis of labour hours.

Budgeted operating data for the year just completed follow:

Service Departments Operating Departments

Custodial Maintenance Brewing Bottling Packaging

Budgeted costs before allocation $18,000 $8,000 $80,000 $50,000 $90,000

Square metres 1,000 10,000 5,000 22,000 13,000

Labour-hours - - 4,000 8,000 8,000

Required:

1) a schedule, which allocates Service Department costs to the Production Departments by the direct method.

2) a schedule, which allocates Service Department costs to the Production Departments by the step-down method, allocating Custodial Services first.

Question 2:

Tabulation Corporation manufactures and sells two types of electronic calculators: EL-520 W and EL-620

T. The following data was gathered from last month's activities:

EL-520 W EL-620 T

Sales in units 5,000 3,000

Selling price per unit $50 $100

Variable production costs per unit $10 $26

Traceable fixed production costs $100,000 $150,000

Variable selling expenses per unit $5 $6

Traceable fixed selling expenses $5,000 $7,500

Allocated division administrative expenses $50,000 $60,000

Required:

1) a segmented income statement in the contribution format for last month, showing both

"Amount" and "Percent" columns for the company as a whole and for each model.

2) Why might it be very difficult to calculate separate break-even sales for each model?

3) Refer to the original data and, if necessary, the results of the segmented income statement

prepared in part (1) above. Calculate the total break-even sales (in both units AND dollars) for

last month, assuming that none of the fixed production costs and fixed selling expenses is

traceable. Allocate the total break-even sales between the two models.

4) Again, refer to the original data and, if necessary, the results of the segmented income

statement prepared in part (1) above. Calculate the total break-even sales (in both units AND

dollars) for last month, assuming that the "allocated" amounts of the company's administrative

expenses are actually traceable. Allocate the total break-even sales between the two models.

5) How reasonable are the total break-even sales numbers calculated in parts (3) and (4) given the

actual results for last month?

Question 3:

The following data is provided on behalf of Mittens Incorporated for last year appear below:

Mittens Incorporated

Statements of Financial Position

For the Year Ended June 2020

Beginning Balance Ending Balance

Assets:

Cash $135,000 $266,000

Accounts receivable 225,000 475,000

Inventory 314,000 394,000

Plant and equipment (net) 940,000 860,000

Investment in Scarf Company 104,000 101,000

Land (undeveloped) 198,000 65,000

Total assets $1,916,000 $2,161,000

Liabilities and owners' equity:

Accounts payable $88,000 $119,000

Long-term debt 585,000 665,000

Owners' equity 1,243,000 1,377,000

Total liabilities and owners' equity $1,916,000 $2,161,000

Mittens Incorporated

Income Statement As at June 2020

Sales $4,644,000

Less operating expenses 4,291,000

Net operating income 353,000

Less interest and taxes:

Interest expense $90,000

Tax expense 129,000 219,000

Operating Income $134,000

The "Investment in Scarf Company" on the statement of financial position represents an investment in

the stock of another company.

Required:

1) Compute the company's margin, turnover, and return on investment for last year.

2) The Board of Directors of Mittens Company have set a minimum required return of 15%. What

was the company's residual income last year?

Question 4:

Heisenberg Corporation has a Moldings Division that does molding work of various types. The

company's Machine Products Division has asked the Moldings Division to provide it with 20,000 special

moldings each year on a continuing basis. The special moldings would require $10 per unit in variable

production costs. The Machine Products Division has a bid from an outside supplier of $29 per unit for

the moldings.

In order to have time and space to produce the new moldings, the Moldings Division would have to cut

back production of another molding: the Blue4, which it presently is producing. The Blue4 sells for $30

per unit, and requires $12 per unit in variable production costs. Boxing and shipping costs of the Blue4

are $4 per unit. Boxing and shipping costs for the new special molding would be only $1 per unit. The

company is now producing and selling 100,000 units of the Blue4 each year. Production and sales of this

molding would drop by 20% if the new molding is produced.

Required:

1) What is the range of transfer prices within which both the divisions' profits would increase as a

result of agreeing to the transfer of 20,000 moldings per year from the Moldings Division to the

Machine Products Division?

2) Is it in the best interests of Heisenberg Corporation for this transfer to take place? Explain.