Chapter 22: Quick Study

QS 22-1: Allocation and Measurement Terms This exercise involves matching terms with their descriptions. Here's how they relate: • • • • • • Cost Center: Incurs costs without directly yielding revenues. Profit Center: Incurs costs and generates revenues. Responsibility Accounting System: Evaluates unit managers only on activities they can control. Operating Department: Performs an organization’s main functions, like manufacturing and selling. Indirect Expenses: Costs incurred for the joint benefit of more than one department. Controllable Costs: Costs that a manager has the ability to affect. QS 22-2: Responsibility Accounting Report—Cost Center Jose Ruiz manages the equipment repair department, which is a cost center. His report focuses on identifying controllable costs. The total controllable costs include expenses that Jose can influence directly, such as materials and supplies, while excluding those he cannot control like his salary, rent, or insurance. QS 22-3: Responsibility Accounting Report—Cost Center This exercise provides a partial responsibility accounting report for a cost center. The goal is to fill in missing values for expenses or total amounts. It involves computing the sums or differences between controllable and uncontrollable costs to complete the report. QS 22-4: Responsibility Accounting Report for the Ohio Factory The task is to complete the accounting report for a factory with two cost centers— Clothing and Shoes. The report includes missing values like expenses or contributions from each department, which need to be calculated for a complete picture. QS 22-5: Basis for Cost Allocation This problem focuses on choosing the best basis for allocating different types of expenses: • • Purchasing Department Expenses: Allocated based on the proportion of purchase orders. Office Department Expenses: Allocated based on the relative number of employees. • • Advertising Expenses: Allocated based on the proportion of sales in each department. Electric Utility Expenses: Allocated based on floor space occupied. QS 22-6: Allocating Costs to Departments For this exercise, Macee Store's advertising costs ($100,000) are to be allocated among its departments based on their respective sales figures. The allocation formula divides the total costs proportionally according to the sales of each department. QS 22-7: Allocating Costs Based on Employees SodaPop Company needs to allocate office costs of $160,000 between its Mixing and Bottling departments based on the number of employees (300 for Mixing, 200 for Bottling). The allocation is based on the relative proportion of employees in each department. QS 22-8: Allocating Maintenance Costs Sierra Company allocates $200,000 of maintenance costs based on square footage occupied by its Mixing (22,000 sq ft) and Bottling (18,000 sq ft) departments. The allocation depends on the proportion of space occupied by each department. QS 22-9: Rent Expense Allocation to Departments A retailer pays $130,000 annual rent for a two-story building, with different allocations to floors and departments based on square footage. The problem involves calculating how much rent each department will bear based on their floor space. QS 22-10: Departmental Contribution to Overhead This exercise requires computing each department's contribution to overhead from given data. The goal is to determine which department contributes the most towards covering the overall overhead costs. QS 22-11: Departmental Income and Contribution to Overhead This problem involves preparing departmental income statements and calculating each department’s contribution to overhead. Salaries are considered direct expenses, while other expenses need to be allocated or treated as indirect expenses. QS 22-12: Computing Return on Investment (ROI) To calculate the ROI for different investment centers, the formula is ROI = Income / Average Assets. The center with the highest ROI is considered the best performer. QS 22-13: Computing Residual Income Using the ROI data from QS 22-12, this task calculates residual income. The formula is Residual Income = Income - (Target Rate * Average Assets). The target rate in this case is 12%. QS 22-14: Components of Performance Measures This problem involves filling in blanks related to the performance of investment centers. It includes metrics like profit margin, asset turnover, and income, which are used to assess the performance of each center. QS 22-15: Computing Profit Margin, ROI, and Investment Turnover Given sales, income, and average assets, the exercise involves calculating: • • • Profit Margin: Income / Sales ROI: Income / Average Assets Investment Turnover: Sales / Average Assets QS 22-16: Balanced Scorecard Measures Classify various performance measures into balanced scorecard perspectives: • • • • Customer: Customer wait time, satisfaction index. Internal Process: Length of time raw materials are in inventory. Innovation & Learning: Employee training sessions. Financial: Profit margin. QS 22-17: Preparing a Balanced Scorecard This exercise involves assessing hotel divisions against performance goals like occupancy rates and preparing a balanced scorecard using metrics like occupancy percentage and customer satisfaction. QS 22-18: Determining Transfer Prices Without Excess Capacity When the Windshield division is at full capacity, the transfer price should be market-based, which is $450 per windshield, as it represents the opportunity cost of selling externally instead of transferring internally. QS 22-19: Determining Transfer Prices with Excess Capacity If the Windshield division has excess capacity, the transfer price should range between the variable cost ($200) and the market price ($450), allowing flexibility in internal negotiations while covering the variable costs. QS 22-20: Cash Conversion Cycle The task involves calculating the days in the cash conversion cycle, which measures how efficiently a company manages its cash flow from inventory through sales and collections. The company with the shorter cycle is more effective in cash management. QS 22-21A: Joint Cost Allocation To allocate the joint cost of a building purchase between two rental units (Unit A and Unit B), the value basis is used. This involves assigning costs proportionally based on the rental values of each unit, considering the square footage and the rent rate per square foot. These summaries give a clear understanding of the responsibility accounting concepts and related calculations, helping you analyze financial performance and cost management effectively.