Question;Ex. 186;Webb, Inc. uses a flexible budget for;manufacturing overhead based on machine hours. Variable manufacturing overhead;costs per machine hour are as follows;Indirect;labor $5.00;Indirect;materials 2.50;Maintenance.50;Utilities.30;Fixed overhead costs per month are;Supervision $1,200;Insurance 400;Property;taxes 600;Depreciation 1,800;The company;believes it will normally operate in a range of 4,000 to 8,000 machine hours;per month. During the month of August, 2013, the company incurs the following;manufacturing overhead costs;Indirect;labor $28,000;Indirect;materials 16,200;Maintenance 2,800;Utilities 1,900;Supervision 1,440;Insurance 400;Property;taxes 600;Depreciation 1,860;Ex. 186 (Cont.);Instructions;Prepare a flexible budget report;assuming that the company used 6,000 machine hours during August.;Ex. 187;Lapp Manufacturing uses flexible budgets to;control its selling expenses. Monthly sales are expected to be from $400,000 to;$480,000. Variable costs and their percentage relationships to sales are;Sales;commissions 6%;Advertising 4%;Traveling 5%;Delivery 1%;Fixed selling expenses consist of sales salaries;$80,000 and depreciation on delivery equipment $20,000.;Instructions;Prepare a flexible budget for increments of $40,000 of sales within the;relevant range.;Ex. 188;Cadiz Co. uses flexible budgets to control its;selling expenses. Monthly sales are expected to be from $300,000 to $360,000.;Variable costs and their percentage relationships to sales are;Sales;commissions 5%;Advertising 4%;Traveling 7%;Delivery 1%;Fixed selling expenses consist of sales salaries;$40,000 and depreciation on delivery equipment $10,000.;The actual;selling expenses incurred in February, 2013, by Cadiz are as follows;Sales;commissions $17,200;Advertising 12,000;Traveling 23,700;Delivery 2,400;Fixed selling expenses consist of sales salaries;$41,500 and depreciation on delivery equipment $10,000.;Instructions;Prepare a flexible budget performance report;assuming that February sales were $330,000.;Ex. 189;A flexible;budget graph for the Assembly Department shows the following;1. At;zero direct labor hours, the total budgeted cost line intersects the vertical;axis at $120,000.;2. At;normal capacity of 50,000 direct labor hours, the line drawn from the total;budgeted cost line intersects the vertical axis at $360,000.;Instructions;Develop the;budgeted cost formula for the Assembly Department and identify the fixed and;variable costs.;Ex. 190;Ace Production Co. has two production;departments, Fabricating and Assembling. At a department managers' meeting, the;controller uses flexible budget graphs to explain total budgeted costs. Separate;graphs based on direct labor hours are used for each department. The graphs;show the following.;1. At;zero direct labor hours, the total budgeted cost line and the fixed cost line;intersect the vertical axis at $100,000 in the Fabricating Department, and $80,000;in the Assembling Department.;Ex. 190 (Cont.);2. At;normal capacity of 100,000 direct labor hours, the line drawn from the total;budgeted cost line intersects the vertical axis at $360,000 in the Fabricating;Department, and $290,000 in the Assembling Department.;Instructions;(a) State;the total budgeted cost formula for each department.;(b) Compute;the total budgeted cost for each department, assuming actual direct labor hours;worked were 106,000 and 94,000, in the Fabricating and Assembling Departments;respectively.;Ex. 191;Hubbard, Inc.'s;static budget at 3,000 units of production includes $12,000 for direct labor, $3,000;for utilities (variable), and total fixed costs of $24,000. Actual production;and sales for the year was 9,000 units, with an actual cost of $70,800.;Instructions;Determine if Hubbard is over or under budget.;Ex. 192;Campbell Clothing produces men's ties. The;following budgeted and actual amounts are for 2013;Cost Budget at;5,000 Units Actual Amounts at;5,800 Units;Direct;materials $60,000 $71,000;Direct;labor 75,000 86,500;Equipment;depreciation 5,000 5,000;Indirect;labor 7,500 8,600;Indirect;materials 9,000 9,600;Rent;and insurance 12,000 13,000;Instructions;Prepare a performance budget report for Campbell;Clothing for the year.;Ex. 193;Data concerning manufacturing overhead for Wilson;Industries are presented below. The Mixing Department is a cost center.;An analysis of the overhead costs reveals that;all variable costs are controllable by the manager of the Mixing Department and;that 50% of supervisory costs are controllable at the department level.;Ex. 193 (Cont.);The flexible budget formula and the cost and;activity for the months of July and August are as follows;Flexible;Budget Per;Direct;Labor Hour Actual Costs and Activity;July August;Direct labor hours 6,000 7,000;Overhead costs;Variable;Indirect;materials $3.50 $;20,500 $ 25,100;Indirect;labor 6.00 39,500 40,700;Factory;supplies 1.00 7,600 8,200;Fixed;Depreciation $20,000 15,000 15,000;Supervision 25,000 23,000 26,000;Property;taxes 10,000 12,000 12,000;Total costs $117,600 $127,000;Instructions;(a) Prepare the responsibility;reports for the Mixing Department for each month.;(b) Comment on the manager's;performance in controlling costs during the two month period.;Ex. 194;Strickland Corp.'s manufacturing overhead budget;for the first quarter of 2013 contained the following data;Variable Costs;Indirect;materials $40,000;Indirect;labor 24,000;Utilities 20,000;Maintenance 12,000;Ex. 194 (Cont.);Fixed Costs;Supervisor's;salary $80,000;Depreciation 16,000;Property;taxes 8,000;Actual variable costs for the first;quarter were;Indirect;materials $37,200;Indirect;labor 26,400;Utilities 21,000;Maintenance 10,600;Actual fixed costs were as expected except for;property taxes which were $9,000. All costs are considered controllable by the;department manager except for the supervisor's salary.;Instructions;Prepare a manufacturing overhead responsibility performance report for;the first quarter.;Ex. 195;The Deluxe Division, a profit center of Riley;Manufacturing Company, reported the following data for the first quarter of 2013;Sales $9,000,000;Variable;costs 6,300,000;Controllable;direct fixed costs 1,200,000;Noncontrollable;direct fixed costs 530,000;Indirect;fixed costs 300,000;Instructions;(a) Prepare a performance report;for the manager of the Deluxe Division.;(b) What is the best measure of;the manager's performance? Why?;(c) How would the responsibility;report differ if the division was an investment center?;Ex. 196;Danner Co. has;three divisions which are operated as profit centers. Actual operating data for;the divisions listed alphabetically are as follows.;Operating Data Women's Shoes Men's Shoes Children's Shoes;Contribution margin $280,000 (3) $220,000;Controllable fixed costs 130,000 (4) (5);Controllable margin (1) $ 90,000 96,000;Sales 800,000 480,000 (6);Variable costs (2) 330,000 250,000;Instructions;(a) Compute;the missing amounts. Show computations.;(b) Prepare;a responsibility report for the Women's Shoe Division assuming (1) the data are;for the month ended June 30, 2013, and (2) all data equal budget except;variable costs which are $20,000 over budget.;Ex. 197;The Real Estate Products Division of McKenzie;Co. is operated as a profit center. Sales for the division were budgeted for 2013;at $1,250,000. The only variable costs budgeted for the division were cost of;goods sold ($610,000) and selling and administrative ($80,000). Fixed costs;were budgeted at $130,000 for cost of goods sold, $120,000 for selling and;administrative and $95,000 for noncontrollable fixed costs. Actual results for;these items were;Sales $1,175,000;Cost;of goods sold;Variable 545,000;Fixed 140,000;Selling;and administrative;Variable 82,000;Fixed 100,000;Noncontrollable;fixed 105,000;Instructions;(a) Prepare a responsibility report for the Real;Estate Products Division for 2013.;(b) Assume the;division is an investment center, and average operating assets were $1,200,000.;Compute ROI.;Ex. 198;The Pacific Division of Henson Industries;reported the following data for the current year.;Sales $4,000,000;Variable costs 2,600,000;Controllable fixed;costs 800,000;Average operating;assets 5,000,000;Top management is unhappy with the investment center's return on;investment (ROI). It asks the manager of the Pacific Division to submit plans;to improve ROI in the next year. The manager believes it is feasible to;consider the following independent courses of action.;1. Increase sales by $400,000 with no change in;the contribution margin percentage.;2. Reduce variable costs by $120,000.;3. Reduce average operating assets by 4%;Instructions;(a) Compute the return on;investment (ROI) for the current year.;(b) Using the ROI formula;compute the ROI under each of the proposed courses of action. (Round to one;decimal.);Ex. 199;The Medford;Burkett Company uses a responsibility reporting system to measure the;performance of its three investment centers: Planes, Taxis, and Limos. Segment;performance is measured using a system of responsibility reports and return on;investment calculations. The allocation of resources within the company and the;segment managers' bonuses are based in part on the results shown in these;reports.;Recently, the company was the victim of a computer virus that;deleted portions of the company's accounting records. This was discovered when;the current period's responsibility reports were being prepared. The printout;of the actual operating results appeared as follows.;Planes;Taxis;Limos;Service revenue $? $450,000 $?;Variable costs 5,000,000? 320,000;Contribution margin? 180,000 380,000;Controllable fixed costs 1,500,000??;Controllable margin? 70,000 176,000;Average operating assets 25,000,000? 1,600,000;Return on investment 12% 10%?;Instructions;Determine the missing pieces of information;above.;Ex. 200;Perez Corp. reported the following;Beginning;of year operating assets $3,200,000;End of;year operating assets 3,000,000;Contribution;margin 1,000,000;Sales 5,000,000;Controllable;fixed costs 643,000;Its required return is 10%.;Instructions;Compute the company?s ROI.;Ex. 201;Lombard, Inc.;has two investment centers and has developed the following information;Department;A Department B;Departmental controllable margin $120,000?;Average operating assets? $400,000;Sales 800,000 250,000;ROI 10% 12%;Instructions;Answer the;following questions about Department A and Department B.;1. What was the amount of Department A's;average operating assets? $____________.;2. What was the amount of Department B's;controllable margin? $____________.;3. If Department B is able to reduce its;operating assets by $100,000, Department B's new ROI would be ____________.;4. If Department A is able to increase its;controllable margin by $60,000 as a result of reducing variable costs;Department A's new ROI would be _________________.;Ex. 202;The Atlantic Division of Stark Productions;Company reported the following results for 2013;Sales $4,000,000;Variable;costs 3,200,000;Controllable;fixed costs 300,000;Average;operating assets 2,500,000;Management is considering the following independent;alternative courses of action in 2014 in order to maximize the return on;investment for the division.;1. Reduce controllable fixed costs;by 10% with no change in sales or variable costs.;2. Reduce;average operating assets by 10% with no change in controllable margin.;3. Increase;sales $500,000 with no change in the contribution margin percentage.;Instructions;(a) Compute the return on;investment for 2013.;(b) Compute;the expected return on investment for each of the alternative courses of;action.;Ex. 203;Data for the following subsidiaries of Olive;Manufacturing, which are operated as investment centers, are as follows;Fleming;Company Oak Company;Sales $3,000,000 $2,000,000;Controllable margin (1) (3);Average operating assets (2) 4,000,000;Contribution margin 1,200,000 800,000;Controllable fixed costs 500,000 200,000;Return on Investment 10% (4);Instructions;Compute the missing amounts using the ROI formula.;Ex. 204;The data for;an investment center is given below.;1/1/12 12/31/12;Current assets $ 300,000 $ 700,000;Plant assets 3,000,000 4,000,000;Idle plant assets 250,000 330,000;Land held for future use 1,200,000 1,200,000;The;controllable margin is $760,000.;Instructions;What is the;return on investment for the center for 2013?
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