Chapter 22: Problem Set A

Problem 22-1A: Responsibility Accounting Performance Reports (P1) This problem focuses on preparing responsibility accounting reports for the Indiana plant managed by Ana Perez, which includes the Camper and Trailer departments as well as the Office department. Each report will show costs that are under the control of the respective managers. Key Information: • • Camper and Trailer Departments: Costs controlled by department managers include direct materials, direct labor, supplies, and utilities. Indiana Plant Manager: Ana Perez manages the department managers’ salaries, rent, office salaries (excluding her own), and office costs, along with all costs controlled by the operating department managers. Required Reports: 1. Camper Department Manager’s Report: List all controllable costs (direct materials, direct labor, supplies, and utilities). 2. Trailer Department Manager’s Report: Similar to the Camper Department, focusing on controllable costs. 3. Indiana Plant Manager’s Report: Includes the controllable costs from the operating departments, as well as the salaries of department managers, rent, office costs, etc. The format of each report should include a comparison between budgeted costs and actual costs to identify variances. Problem 22-2A: Allocation of Indirect Expenses to Departments (P2) National Retail needs to allocate indirect expenses between the Housewares and Sporting departments. Indirect Expenses: Includes rent, advertising, and insurance. Allocation Methods: 1. Previous Method: Rent is allocated based on square footage occupied, with a cost of $20 per square foot. Housewares and Sporting would receive their share based on their occupied space. 2. New Method: o Rent: Allocated based on square footage. o Advertising Expense: Allocated based on total sales of each department. o Insurance Expense: Allocated based on the value of insured assets in each department. Required Calculations: 1. Calculate the total allocation of rent, advertising, and insurance for each department using both methods. 2. Provide a breakdown of each allocation and ensure that the sum matches the total expense figures. Problem 22-3A: Departmental Income Statements (P3) Garcia Company’s exercise involves creating a departmental contribution to overhead report. Key Information: • • • Two operating departments: Phone and Earbuds. One service department: Office. Indirect expenses consist of rent, utilities, and office department costs, which need to be allocated between the departments. Required Steps: 1. Allocate Service Department Costs: Allocate Office department costs to Phone and Earbuds departments based on a reasonable method (e.g., sales or number of employees). 2. Prepare Contribution Report: Show each department’s contribution to overhead, which reflects how much each contributes towards covering fixed costs after covering its direct expenses. Problem 22-4A: Departmental Income (P3) Diaz Company operates two departments, Clothes and Shoes. Key Information: • • Given are indirect expenses like rent, advertising, and utilities. Allocation bases for these expenses are needed, such as sales for advertising or square footage for rent. Required Steps: 1. Allocate Indirect Expenses: Distribute rent, utilities, and other shared costs based on appropriate allocation bases. 2. Prepare Departmental Income Statements: Include each department's sales, cost of goods sold, direct expenses, allocated indirect expenses, and calculate the net income. 3. Check the result for accuracy (e.g., Clothes department income should match the given amount). Problem 22-5AA: Allocation of Joint Costs (C2) California Orchards processes walnuts into three grades and needs to allocate joint costs. Key Information: • • Sales Values: Provided for each grade. Joint Costs: Incurred during processing. Required Steps: 1. Use Value Basis for Allocation: Allocate joint costs to each grade based on their respective sales values. This involves calculating the proportion of each grade’s sales to the total sales and applying this proportion to the total joint costs. 2. Compute Gross Profit for Each Grade: Subtract the allocated joint costs from each grade’s sales value to determine the gross profit. Formulas to Use: • • • Allocation Proportion for Each Grade = (Sales Value of the Grade / Total Sales Value) Allocated Joint Cost for Each Grade = Allocation Proportion × Total Joint Costs Gross Profit = Sales Value - Allocated Joint Cost