This question has 9 parts to it: Please answer the follwing:

1. Blueprint Problem: Profit Centers and Segmented Income Statements

   Centralized and Decentralized Operations

   In a centralized company, all major planning and operating decisions are made by top management. For example, a one-person, owner-manager-operated company is centralized because all plans and decisions are made by one person. In a decentralized company, managers of separate divisions or units are delegated operating responsibility. The division (unit) managers are responsible for planning and controlling the operations of their divisions. For example, in some companies, division managers have authority over profits but not fixed asset purchases.

   In a small owner-manager-operated business, BLANK? decentralization centralizationCorrect 1 of Item 1 may be desirable. This is because the owner-manager's close supervision ensures that the business will be operated in the way the owner-manager wishes.

   Profit Center Performance

   In a decentralized business, accounting assists managers in evaluating and controlling their areas of responsibility, called responsibility centers. Many companies use responsibility centers to achieve goals between a segment of the company and the company itself. Responsibility centers are normally one of four types: cost (or expense) center, revenue center, profit center, or investment center.

   The center's name indicates the type of function. For example, a profit center is a segment of the business for which a manager has the responsibility and authority for making decisions that affectSelect only revenues only expenses revenues and costsCorrect 2 of Item 1 and, thus, profits.

   The profit center income statement should include BLA revenues and expenses only revenues and expenses that are not controlled only revenues and expenses that are controlledCorrect 3 of Item 1 by the manager. Controllable revenues are revenues earned by the profit center. Controllable expenses are costs that can be influenced (controlled) by the decisions of profit center managers.

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   APPLY THE CONCEPTS: Construction of a segmented income statement

   Ross has decided to expand its business into cookware, and plans to manufacture standard, deluxe, and economy cookware in one factory. Common fixed overhead for the factory is estimated to be $42,000, and common selling and administrative expenses are estimated to be $7,000. Sales commissions (a variable cost) of 3% of sales are paid on all product lines. The following estimates are available for 2012:

   	Standard	Deluxe	Economy
   Sales	$175,000	$315,000	$210,000
   Variable cost of goods sold	87,500	126,000	63,000
   Direct fixed overhead	16,450	53,865	35,175
   Direct fixed selling and administrative expenses	8,225	35,910	16,884

   Using this information, construct a segmented income statement that displays the income statement information for each segment of the business and for the business as a whole.

   Enter all amounts as positive numbers. If required, round amounts to the nearest cent.

   Ross Company
   Segmented Income Statement
   For the Year 2012
   		Standard		Deluxe		Economy		Total
   Sales		$		$		$		$
   Variable cost of goods sold
   Variable selling expense
   Contribution margin		$		$		$		$
   Less direct fixed expenses:
   Direct fixed overhead
   Direct selling and administrative
   Segment margin		$		$		$		$
   Less common fixed expenses:
   Common fixed overhead
   Common selling and administrative
   Operating income								$

   2)

   Blueprint Problem: Return on investment, margin, and turnover

   Return on Investment (ROI)

   The manager of an investment center should be evaluated based on revenues, costs, and investments. An evaluation based on net income ignores the amount of investment the investment center required. One way to measure operating profit in relation to investment is a calculation called the return on investment.

   One formula for calculating return on investment is:

   Income from Operations Invested Assets

   ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment.

   APPLY THE CONCEPTS: Calculating return on investment

   The divisional income statements for three divisions of the Chung Company are shown.

   Chung Company
   Divisional Income Statements
   For the Year Ending December 31, 2012
   	Division A			Division B			Division C
   Sales Revenue	$868,600			$1,213,000			$283,500
   Operating expenses	512,474			909,750			150,255
   Income from operations before service-department charges	$356,126			$303,250			$133,245
   Service-department charges	225,836			157,690			93,555
   Income from operations	$130,290			$145,560			$39,690

   Additional financial data from the three divisions of the Chung Company are shown.

   	Division A		Division B		Division C
   Invested assets		$1,010,000		$606,500		$405,000

   Calculate the return on investment for each division. When required, round the ROI to the nearest hundredth of a percent (for example, 16.943% would be rounded to 16.94%).

   	Division A	Division B	Division C
   Return on investment	%	%	%

   Margin and Turnover

   One way to analyze the difference in return on investment for each division is to separate the return on investment formula into two calculations: margin and turnover. Margin shows the relationship between income from operations and sales. It measures the profit earned for each dollar of sales, which is a measure of SelectprofitabilityefficiencyCorrect 1 of Item 2. Turnover shows the relationship between sales and invested assets. It measures how many dollars of sales result from each dollar of invested assets, which is a measure of SelectprofitabilityefficiencyCorrect 2 of Item 2.

   The formulas for margin and turnover are:

   Margin	=	SelectIncome from OperationsInvested AssetsSalesCorrect 3 of Item 2 SelectIncome from OperationsInvested AssetsSalesCorrect 4 of Item 2
   Turnover	=	SelectIncome from OperationsInvested AssetsSalesCorrect 5 of Item 2 SelectIncome from OperationsInvested AssetsSalesCorrect 6 of Item 2

   APPLY THE CONCEPTS: Calculating margin and turnover

   Calculate the margin and the turnover for each division. When required, round margin to the nearest tenth of a percent (for example, 14.6%) and turnover to two decimal places (for example, 0.82).

   	Division A		Division B		Division C
   Margin		%		%		%
   Turnover

   The division showing the highest operating profitability is Division SelectBACCorrect 7 of Item 3.

   The division showing the highest operating efficiency is Division SelectABCCorrect 8 of Item 3.

   APPLY THE CONCEPTS: Using margin and turnover to calculate return on investment

   A second way to calculate return on investment (ROI) is Return on Investment = Margin x Turnover. Using the margins and turnovers you recorded above, calculate the return on investment for each division. When required, round the return on investment to the nearest hundredth of a percent (for example, 16.94%).

   Calculate the return on investment for each division. Round the ROI to the nearest hundredth of a percent (for example, 16.94%).

   	Division A	Division B	Division C
   Return on investment	%	%	%

   APPLY THE CONCEPTS: Determining which ROI formula to use

   There are two formulas for calculating ROI:

   ROI = Income from Operations / Invested Assets ROI = Margin x Turnover

   a.	Margin can be tracked separately.	SelectYesNoCorrect 1 of Item 5
   b.	If ROI changes, managers can determine which factor caused overall ROI to change.	SelectYesNoCorrect 2 of Item 5
   c.	It is easier to calculate.	SelectYesNoCorrect 3 of Item 5
   d.	Turnover can be tracked separately.	SelectYesNoCorrect 4 of Item 5
   e.	Both formulas give exactly the same information, so there is no reason to use the second formula.	SelectYesNoCorrect 5 of Item 5

   Why would a company use the second formula (ROI = Margin x Turnover) to calculate ROI? Select the YES or NO to the following statements.

   3)

   Blueprint Problem: Cost-Based Decision Making - Keep or drop decisions

   Differential Analysis: Keep-or-Drop Decisions

   Managers must often decide between two or more alternatives. Differential analysis is used in decision making. When using differential analysis, it is important to only include those amounts that are different between the alternatives. Differential cost is subtracted from differential revenue to determinedifferential income/loss.

   Differential analysis requires that relevant costs must be identified. When determining which costs are relevant, which of the following statements is true?

   SelectAll fixed costs are irrelevant.All mixed costs are relevant.All variable costs are relevant.Relevancy must be determined on a case-by-case basis.Correct 1 of Item 1

   For example, a manufacturing company may have a segment or product that is operating at a loss. The decision to keep the segment/product or discontinue it is called a keep-or-drop decision and uses differential analysis to assist in the decision-making process.

   Differential analysis is only one step in deciding to keep or drop the segment or product. Management must also take into consideration nonquantitative data. If the company drops a product, will it affect the sales of other products? If employees are laid off or terminated, will it affect employee morale? These nonquantitative issues will influence the success or failure of a keep-or-drop decision.

   APPLY THE CONCEPTS: Calculate remaining cost in a keep-or-drop decision

   City Corporation makes three products: snowboards, skateboards, and skis. The contribution margin income statement for each department is provided:

   	Snowboards	Skateboards	Skis
   Sales	$195,000	$160,000	$180,000
   Less: variable expenses	78,000	13,000	63,000
   Contribution margin	$117,000	$147,000	$117,000
   Less: fixed expenses:
   Salaries	$68,250	$56,000	$72,000
   Depreciation	18,000	24,000	36,000
   Advertising	4,700	8,000	54,000
   Net income (loss)	$26,050	$59,000	$-45,000

   The net income for skis has been negative for several periods despite management's efforts to increase sales and decrease expenses. Therefore, City Corporation is considering discontinuing production of skis. If the ski line is dropped, all variable costs currently associated with that department will be eliminated, as will all advertising costs, but only 90% of the salaries currently associated with that department will be eliminated. If the ski line is dropped, what amount of salaries will remain? Select$0$64,800$7,200$72,000Correct 1 of Item 2

   APPLY THE CONCEPTS: Calculate differential income in a keep-or-drop decision

   Complete the table to compare the effects of dropping the ski line of products. Enter all amounts as positive numbers except for a net loss. If an amount is zero, enter "0". The cost data for the each department is shown below.

   		Snowboards	Skateboards	Skis
   Sales		$195,000	$160,000	$180,000
   Less: variable expenses		78,000	13,000	63,000
   	Contribution margin	$117,000	$147,000	$117,000
   Less: fixed expenses:
   	Salaries	$68,250	$56,000	$72,000
   	Depreciation	18,000	24,000	36,000
   	Advertising	4,700	8,000	54,000
   Net income (loss)		$26,050	$59,000	$-45,000

   	Alternatives				Differential Effect
   	Keep		Drop		Increase/Decrease
   Sales	$				$
   Less: variable expenses
   Contribution margin	$				$
   Less: fixed expenses:
   Salaries	$		$		$
   Depreciation
   Advertising
   Net income (loss)	$		$		$

   Based on the analysis, City Corporation should SelectdropkeepCorrect 22 of Item 3 the ski line. If the ski line is dropped, its overall income will SelectincreasedecreaseCorrect 23 of Item 3.

   Check