D Corporation is one of the major producers of pre-fabricated houses in the home building Industry. The corporation consists of two divisions: 1. Bell Division, which acquires the raw materials to manufacture the basic house components and assembles them into kits 2. Cornish Division, which takes the kits and constructs the homes for final home buyers, The corporation is decentralized and the management of each division is measured by its income and return on investment Bel Division assembles seven separate house lots using raw materials purchased at the prevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 to US$98,000. The prices are set by corporate management of Corporation using prices paid by Cornish when it buys comparable units from outside sources. The smaller kits with the lower prices have become a larger portion of the units sold because the final house buyer is face with prices that are increasing more rapidly than personal income. The kits are manufactured and assembled in a new plant purchased by Bell this year. The division had been located in a leased plant for the past four years. All kits are assembled upon receipt of an order from the Cornish Division. When the kit is completely assembled it is immediately taken by the Cornish Division for final construction. Thus, Bell Division has no finished goods inventory The Bell Division's accounts and reports are prepared on an actual-cost basis. There is no budget and standards have not been developed for each product. A factory overhead rate is calculated at the beginning of each year. The rate is designed to charge all overhead to the product each year. Any under or over-applied overhead is allocated to the cost of goods sold account and the WIP inventories Bell Division's annual report is presented below. This report forms the basis of the evaluation of the division and its management by the corporation management Additional Information regarding corporate and division practices is as follows: The corporation office does all the personnel and accounting work for each division The corporate personnel costs are allocated on the basis of number of employees in the division. The accounting costs are allocated to the division on the basis of total costs excluding corporate charges. The division administration costs are included in factory overhead. The finance charges include a corporate-imputed interest charge on division assets and any divisional lease payments The division investment for the ROC calculation includes division inventory and plant and Rof equipment at gross book value Bell Division Performance Report for the Year Ended December 31, 2020 Dec 2012 2020 2019 AMOUNT CHANGE Summary Data Net Income (5000 omitted) $84.222 $31.573 52.649 3.4 Return on investment (ROU) 37% 43 [6% (140) Kits sold (units) 2.000 2.100 (100 (48) Production Data Kits started 2400 1.600 BOG 500 Kits transferred to Garnish Di 2000 2.100 (100) (4-8) Kits in process at year end 700 300 400 1333 Increase (Decrease in its process at year-end 400 (500) Financial Data (5000) Sales 5138.000 $162.800 (524.000 115.2) 32,000 41.700 29.000 $102.700 40.000 53000 37.000 S130.000 (8,000) (11,300) (1,000) $27.2002 (20.0) (213) (21.61 21.0 Production costs of units sold Raw materia Labor Factory overhead Cost of units sold Other Costs: Corporate Charges for Personnel services Accounting services Financing costs Total other costs Adjustments to Income Unreimbursed fire loss Raw material losses due to impropoer storage Total adjustments Total Costs 228 425 300 $9.57 210 440 525 $1.175 18 () (15) 1225 ) 182222 8.6 (3.4) 12.00 (189) 0 52 (52 (1000) 125 125 $125 $103.778 $ 0 SS2 $131.227 SZZ (527449) 1000 (20.91 DIVISION INCOME $34.222 $31.572 $2.649 8.4 Division Investment 592.000 573,000 $19,000 260 ROI 37% 43% (6%) (14.0) Required: (a) Discuss 3 reasons why performance reporting is important. (6 marks) (b) Using the annual report presented for Bell Division, evaluate the division and its management in terms of: Bell Division assembles seven separate house lots using raw materials purchased at the prevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 to US$98,000. The prices are set by corporate management of D Corporation using prices paid by Cornish when it buys comparable units from outside sources. The smaller kits with the lower prices have become a larger portion of the units sold because the final house buyer is face with prices that are increasing more rapidly than personal income. The kits are manufactured and assembled in a new plant purchased by Bell this year. The division had been located in a leased plant for the past four years. All kits are assembled upon receipt of an order from the Cornish Division. When the kit is completely assembled it is immediately taken by the Cornish Division for final construction. Thus, Bell Division has no finished goods inventory The Bell Division's accounts and reports are prepared on an actual-cost basis. There is no budget and standards have not been developed for each product. A factory overhead rate is calculated at the beginning of each year. The rate is designed to charge all overhead to the product each year. Any under or over applied overhead is allocated to the cost of goods sold account and the WIP inventories Bell Division's annual report is presented below. This report forms the basis of the evaluation of the division and its management by the corporation management Additional information regarding corporate and division practices is as follows: The corporation office does all the personnel and accounting work for each division The corporate personnel costs are allocated on the basis of number of employees in the division The accounting costs are allocated to the division on the basis of total costs excluding corporate charges The division administration costs are included in factory overhead, The finance charges include a corporate-imputed interest charge on division assets and any divisional lease payments. . The division investment for the ROI calculation includes division inventory and plant and equipment at gross book value Bell Division Performance Report for the Year Ended December 31, 2020 Ins/Dec.2012 2020 2019 AMOUNT CHANGE Summary Data Net Income (5000 emitted) $34.222 531.573 52.649 3.4 Return on investment (ROI) 37% 43% (6% (14.0) Kits sold (units) 2.000 2.100 (100) (48) Production Data Kits started 2,400 1.600 300 500 Kits transferred to Garnisht 2.000 2.100 (100) (4) Kits in process at year-end 700 300 400 133.3 Increase (Decrease in its in process at year-end 400 Financial Date (5000) Sales 5138.000 S162.800 524.800) 115.2) (500) 32,000 41,700 29.000 SIO2.700 40.000 53,000 37000 S130.000 (8,000) (11,300) (8,000 $27.00 (20.0) (21.3) (21.6) [2LOL 210 Production costs of units sold Raw material Labor Factory overhead Cost of units sold Other Costs: Corporate Charges for Personnel services Accounting services Financing costs Total other costs Adjustments to Income Unreimbursed fire loss Raw material losses due to impropoer storage Total adjustments Total Costs 228 425 300 $253 440 525 SL.LZS 18 (15) [225) 192222 8.6 (3.4) 4129 189) 0 52 (52) (100.0) 125 $125 $103.778 0 SS2 $131227 125 52 ($27.449 ( 100.0 20.9 DIVISION INCOME $34.222 $31.573 $2.642 8.4 Division Investment $92000 $73.000 $19,000 26.0 ROL 37% 43% (6%) (14.0) ) Required: (a) Discuss 3 reasons why performance reporting is important. (6 marks) (b) Using the annual report presented for Bell Division, evaluate the division and its management in terms of The accounting techniques employed in the measurement of division activities (U) The manner of presentation (ll) The effectiveness with which it discloses difference and similarities between years (4 marks per part, total = 12 mks) (c) Make at least three (3) specific recommendations to the management of D Corporation that would improve its accounting and financial reporting system (6 marks) D Corporation is one of the major producers of pre-fabricated houses in the home building Industry. The corporation consists of two divisions: 1. Bell Division, which acquires the raw materials to manufacture the basic house components and assembles them into kits 2. Cornish Division, which takes the kits and constructs the homes for final home buyers, The corporation is decentralized and the management of each division is measured by its income and return on investment Bel Division assembles seven separate house lots using raw materials purchased at the prevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 to US$98,000. The prices are set by corporate management of Corporation using prices paid by Cornish when it buys comparable units from outside sources. The smaller kits with the lower prices have become a larger portion of the units sold because the final house buyer is face with prices that are increasing more rapidly than personal income. The kits are manufactured and assembled in a new plant purchased by Bell this year. The division had been located in a leased plant for the past four years. All kits are assembled upon receipt of an order from the Cornish Division. When the kit is completely assembled it is immediately taken by the Cornish Division for final construction. Thus, Bell Division has no finished goods inventory The Bell Division's accounts and reports are prepared on an actual-cost basis. There is no budget and standards have not been developed for each product. A factory overhead rate is calculated at the beginning of each year. The rate is designed to charge all overhead to the product each year. Any under or over-applied overhead is allocated to the cost of goods sold account and the WIP inventories Bell Division's annual report is presented below. This report forms the basis of the evaluation of the division and its management by the corporation management Additional Information regarding corporate and division practices is as follows: The corporation office does all the personnel and accounting work for each division The corporate personnel costs are allocated on the basis of number of employees in the division. The accounting costs are allocated to the division on the basis of total costs excluding corporate charges. The division administration costs are included in factory overhead. The finance charges include a corporate-imputed interest charge on division assets and any divisional lease payments The division investment for the ROC calculation includes division inventory and plant and Rof equipment at gross book value Bell Division Performance Report for the Year Ended December 31, 2020 Dec 2012 2020 2019 AMOUNT CHANGE Summary Data Net Income (5000 omitted) $84.222 $31.573 52.649 3.4 Return on investment (ROU) 37% 43 [6% (140) Kits sold (units) 2.000 2.100 (100 (48) Production Data Kits started 2400 1.600 BOG 500 Kits transferred to Garnish Di 2000 2.100 (100) (4-8) Kits in process at year end 700 300 400 1333 Increase (Decrease in its process at year-end 400 (500) Financial Data (5000) Sales 5138.000 $162.800 (524.000 115.2) 32,000 41.700 29.000 $102.700 40.000 53000 37.000 S130.000 (8,000) (11,300) (1,000) $27.2002 (20.0) (213) (21.61 21.0 Production costs of units sold Raw materia Labor Factory overhead Cost of units sold Other Costs: Corporate Charges for Personnel services Accounting services Financing costs Total other costs Adjustments to Income Unreimbursed fire loss Raw material losses due to impropoer storage Total adjustments Total Costs 228 425 300 $9.57 210 440 525 $1.175 18 () (15) 1225 ) 182222 8.6 (3.4) 12.00 (189) 0 52 (52 (1000) 125 125 $125 $103.778 $ 0 SS2 $131.227 SZZ (527449) 1000 (20.91 DIVISION INCOME $34.222 $31.572 $2.649 8.4 Division Investment 592.000 573,000 $19,000 260 ROI 37% 43% (6%) (14.0) Required: (a) Discuss 3 reasons why performance reporting is important. (6 marks) (b) Using the annual report presented for Bell Division, evaluate the division and its management in terms of: Bell Division assembles seven separate house lots using raw materials purchased at the prevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 to US$98,000. The prices are set by corporate management of D Corporation using prices paid by Cornish when it buys comparable units from outside sources. The smaller kits with the lower prices have become a larger portion of the units sold because the final house buyer is face with prices that are increasing more rapidly than personal income. The kits are manufactured and assembled in a new plant purchased by Bell this year. The division had been located in a leased plant for the past four years. All kits are assembled upon receipt of an order from the Cornish Division. When the kit is completely assembled it is immediately taken by the Cornish Division for final construction. Thus, Bell Division has no finished goods inventory The Bell Division's accounts and reports are prepared on an actual-cost basis. There is no budget and standards have not been developed for each product. A factory overhead rate is calculated at the beginning of each year. The rate is designed to charge all overhead to the product each year. Any under or over applied overhead is allocated to the cost of goods sold account and the WIP inventories Bell Division's annual report is presented below. This report forms the basis of the evaluation of the division and its management by the corporation management Additional information regarding corporate and division practices is as follows: The corporation office does all the personnel and accounting work for each division The corporate personnel costs are allocated on the basis of number of employees in the division The accounting costs are allocated to the division on the basis of total costs excluding corporate charges The division administration costs are included in factory overhead, The finance charges include a corporate-imputed interest charge on division assets and any divisional lease payments. . The division investment for the ROI calculation includes division inventory and plant and equipment at gross book value Bell Division Performance Report for the Year Ended December 31, 2020 Ins/Dec.2012 2020 2019 AMOUNT CHANGE Summary Data Net Income (5000 emitted) $34.222 531.573 52.649 3.4 Return on investment (ROI) 37% 43% (6% (14.0) Kits sold (units) 2.000 2.100 (100) (48) Production Data Kits started 2,400 1.600 300 500 Kits transferred to Garnisht 2.000 2.100 (100) (4) Kits in process at year-end 700 300 400 133.3 Increase (Decrease in its in process at year-end 400 Financial Date (5000) Sales 5138.000 S162.800 524.800) 115.2) (500) 32,000 41,700 29.000 SIO2.700 40.000 53,000 37000 S130.000 (8,000) (11,300) (8,000 $27.00 (20.0) (21.3) (21.6) [2LOL 210 Production costs of units sold Raw material Labor Factory overhead Cost of units sold Other Costs: Corporate Charges for Personnel services Accounting services Financing costs Total other costs Adjustments to Income Unreimbursed fire loss Raw material losses due to impropoer storage Total adjustments Total Costs 228 425 300 $253 440 525 SL.LZS 18 (15) [225) 192222 8.6 (3.4) 4129 189) 0 52 (52) (100.0) 125 $125 $103.778 0 SS2 $131227 125 52 ($27.449 ( 100.0 20.9 DIVISION INCOME $34.222 $31.573 $2.642 8.4 Division Investment $92000 $73.000 $19,000 26.0 ROL 37% 43% (6%) (14.0) ) Required: (a) Discuss 3 reasons why performance reporting is important. (6 marks) (b) Using the annual report presented for Bell Division, evaluate the division and its management in terms of The accounting techniques employed in the measurement of division activities (U) The manner of presentation (ll) The effectiveness with which it discloses difference and similarities between years (4 marks per part, total = 12 mks) (c) Make at least three (3) specific recommendations to the management of D Corporation that would improve its accounting and financial reporting system (6 marks)