ADM 2341 Lecture Notes - Lecture 11: Operating Expense, Balanced Scorecard, Cost Leadership

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23 Mar 2016

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Chapter 11: an organizaion in which decision making is spread throughout the organizaion rather than being conined to a few top execuives. Efecive decentralizaion requires segment reporing to permit an analysis and evaluaion of the decisions made by the segment managers. Segment: a part or acivity of an organizaion about which managers would like cost, revenue, or proit data. Segment statements for internal use are typically prepared in the contribuion format. Fixed costs are divided into two parts on a segmented statement: traceable, common. Only those ixed costs labelled traceable are charged to the various segments. If a ixed cost is not traceable directly to some segment, then it is treated as a common cost and kept separate from the segments themselves. Two guidelines are followed in assigning costs to the various segments of a company: first, according to cost behaviour paterns (i. e. variable and ixed, second, according to whether the costs are directly traceable to the segments involved.

Related Questions

A decentralized organization is one in which:

a. each stockholder is given decision-making authority.

b. only top-level management is given decision-makingauthority.

c. each employee in the organization is given permission to makedecisions about their company.

d. managers at various levels throughout the organization aregiven decision-making authority.

A local chain department store grants each of its store managersthe authority to make buying decisions for their stores. Grantingmanagers this kind of authority is found in which type oforganization?

a. Desegmented

b. Centralized

c. Segmented

d. Decentralized

A local chain electronics store does not allow its store ordistrict managers to make important decisions about their stores.The main role of store managers is to supervise employees and makesure day-to-day transactions run smoothly while district managerssupervise store managers and report profitability data back totop-level management. Not allowing store or district managersdecision-making authority is most likely to be found in which typeof organization?

a. Centralized

b. Desegmented

c. Segmented

d. Decentralized

When a few individuals at the top of an organization retaindecision-making authority, the organization is referred to asa(n):

a. investment center.

b. centralized organization.

c. decentralized organization.

d. profit center.

Which of the following statements regarding the structure oforganizations is false?

a. In a decentralized organization, decision-making authority isconfined to top-level management.

b. Decentralization may make it difficult for managers to shareunique and innovative ideas.

c. When decision-making authority is spread among too manymanagers, managers may become so concerned with their own area ofresponsibility that they lose sight of the company's overallfocus.

d. In a decentralized organization, there may be a lack ofcoordination and communication between segments.

Which of the following is an advantage of decentralization?

a. It allows top-level management who normally work at corporateheadquarters to get involved with the day-to-day decisions thatneed to be made at lower levels.

b. It allows managers to focus on their own area ofresponsibility rather than what is best for the company as awhole.

c. It requires very little as far as manager training costs.

d. It allows decisions to be made in a more timely manner.

Which of the following is not an advantage ofdecentralization?

a. It allows lower-level managers to focus on their ownparticular goals and objectives without having to consider theoverall company's goals and objectives.

b. It allows top-level managers more time to devote tolong-range strategic planning.

c. It permits lower-level managers to gain valuable on-the-jobtraining in order to become better managers.

d. It often creates higher job satisfaction for managers.

Which of the following is often not a disadvantage ofdecentralization?

a. Lack of coordination and communication between segments.

b. Higher training costs for lower-level managers.

c. Lack of company focus as lower-level managers may makedecisions that benefit their own particular segment.

d. Decreased job satisfaction for lower-level managers.

Which of the following is a disadvantage ofdecentralization?

a. Lower training costs for lower-level managers.

b. Less timely decisions are able to be made on a day-to-daybasis.

c. Decreased job satisfaction for lower-level managers.

d. Lack of coordination and communication between segments.

"Responsibility accounting" is the concept that says:

a. managers should be responsible for both revenues and costs oftheir particular segment.

b. managers should be held entirely responsible for allinvestment decisions that impact the particular segment in whichthey are in charge.

c. managers should be held responsible for only those thingsunder their control.

d. managers should never be held entirely responsible for thingsthat happen within the particular segment in which they are incharge.

A budget for a single unit of a product or service is called asa:

a. real cost.

b. fixed cost.

c. total cost.

d. standard cost.

Which of the following statements is true regarding the budgetedcost for direct materials?

a. It must be determined after materials are purchased for theyear.

b. It can not be determined if a company uses a just-in-timeinventory system.

c. It would consist of two components - a standard quantity anda standard price.

d. It would be used on a static budget but not a flexiblebudget.

Variance analysis compares:

a. standard costs and actual costs.

b. static budgets and flexible budgets.

c. product costs and period costs.

d. practical standards and ideal standards.

Which of the following statements is false regarding taskanalysis?

a. It uses actual historical data in the determination ofstandard costs.

b. It emphasizes what it should cost to produce a product ratherthan historical costs.

c. It examines the production process in detail.

d. It may involve the use of engineers.

Task analysis:

a. is used to set standard costs.

b. is used to determine the tasks that production employeesshould complete on a daily basis.

c. is used to evaluate employee performance.

d. emphasizes the historical costs of a product.

A(n) ____ is attainable only when near-perfect conditionsexist.

a. static budget

b. ideal standard

c. flexible budget

d. practical standard

In most companies, machines break down occasionally andemployees are often less than perfect. Which type of standardacknowledges these characteristics when determining the standardcost of a product?

a. Practical standard

b. Ideal standard

c. Efficiency standard

d. Budgeted standard

Hathaway Inc. produces and sells golf umbrellas to localresorts. Hathaway anticipates April to be a busy month with thesale of 2,000 umbrellas. The company has prepared the followingstatic budget for April:

Sales revenue (2,000 units)	$60,000
Variable costs:
Direct materials	6,000
Direct labor	8,000
Overhead	2,500
Fixed costs	6,000
Net operating income	$37,500

During April, Hathaway actually produced and sold 2,300 umbrellas.What should be Hathaway's net operating income in April based on aflexible budget?

a. $35,025

b. $43,125

c. $44,025

d. $37,500

Hoppe Inc. manufactures widgets. Management has determined thateach widget has a standard materials cost of $3.50 when 2.5 ouncesof raw material at a cost of $1.40 per ounce are used. The staticbudget for the month of December showed an estimated production of4,000 widgets in December. During December, 4,300 widgets wereactually produced. The actual cost for each widget was $3.60 when2.25 ounces of raw material at a cost of $1.60 per ounce werepurchased and used. What should be the total direct materials costaccording to Hoppe's flexible budget for December?

a. $14,000

b. $15,480

c. $14,400

d. $15,050

Violetta Inc. manufactures plastic storage boxes. Management hasdetermined that each medium-sized box has a standard materials costof $1.20 when 4 pounds of raw material at a cost of $.30 per poundare used. The static budget for the month of March showed anestimated production of 15,000 boxes in March. During March, 17,000boxes were actually produced. The actual cost for each box was$1.56 when 3.9 pounds of raw material at a cost of $.40 per poundwere purchased and used. What should be the total direct materialscost according to Violetta's flexible budget for March?

a. $26,520

b. $23,400

c. $18,000

d. $20,400

CASE 6â30 Service Organization; Segment Reporting[LO6â4]

Music Teachers, Inc., is an educational association for musicteachers that has 20,000 members. The association operates from acentral headquarters but has local membership chapters throughoutthe United States. Monthly meetings are held by the local chaptersto discuss recent developments on topics of interest to musicteachers. The associationâs journal, Teachersâ Forum, is issuedmonthly with features about recent developments in the field. Theassociation publishes books and reports and also sponsorsprofessional courses that qualify for continuing professionaleducation credit. The associationâs statement of revenues andexpenses for the current year is presented below.

Page 278

The board of directors of Music Teachers, Inc., has requestedthat a segmented income statement be prepared showing thecontribution of each segment to the association. The associationhas four segments: Membership Division, Magazine SubscriptionsDivision, Books and Reports Division, and Continuing EducationDivision. Mike Doyle has been assigned responsibility for preparingthe segmented income statement, and he has gathered the followingdata prior to its preparation.

Membership dues are $100 per year, of which $20 is considered tocover a one-year subscription to the associationâs journal. Otherbenefits include membership in the association and chapteraffiliation. The portion of the dues covering the magazinesubscription ($20) should be assigned to the Magazine SubscriptionDivision.

One-year subscriptions to Teachersâ Forum were sold tononmembers and libraries at $30 per subscription. A total of 2,500of these subscriptions were sold last year. In addition tosubscriptions, the magazine generated $100,000 in advertisingrevenues. The costs per magazine subscription were $7 for printingand paper and $4 for postage and shipping.

A total of 28,000 technical reports and professional texts weresold by the Books and Reports Division at an average unit sellingprice of $25. Average costs per publication were $4 for printingand paper and $2 for postage and shipping.

The association offers a variety of continuing education coursesto both members and nonmembers. The one-day courses had a tuitioncost of $75 each and were attended by 2,400 students. A total of1,760 students took two-day courses at a tuition cost of $125 foreach student. Outside instructors were paid to teach somecourses.

Salary costs and space occupied by division follow:

Personnel costs are 25% of salaries inthe separate divisions as well as for the corporate staff. The$280,000 in occupancy costs includes $50,000 in rental cost for awarehouse used by the Books and Reports Division for storagepurposes.

Page 279

Printing and paper costs other than for magazine subscriptionsand for books and reports relate to the Continuing EducationDivision.

General and administrative expenses include costs relating tooverall administration of the association as a whole. The companyâscorporate staff does some mailing of materials for generaladministrative purposes.

The expenses that can be traced or assigned to the corporatestaff, as well as any other expenses that are not traceable to thesegments, will be treated as common costs. It is not necessary todistinguish between variable and fixed costs.

Required:

Prepare a contribution format segmented income statement forMusic Teachers, Inc. This statement should show the segment marginfor each division as well as results for the association as awhole.

Give arguments for and against allocating all costs of theassociation to the four divisions.

Somewhat similar to a vignette in literature, this provides anopportunity to look at the application of Managerial Accounting ina diverse set of factual circumstances.

After completing the requirements for the case study, pleaseprovide a short narrative (two to four pages) and analysis of yourimpressions on how these principles and processes can be appliedproductively in settings that you encounter or expect to encounterin your career. Which aspects of the course do you believe you willbe able to apply most productively going forward? Which of thesetechniques are you regularly using in your current positions? Ifyou are using different applications, provide insight of the prosand cons in comparison to the reports and analysis above.

Schedules should be submitted in excel format and any analysisand write-ups should be in a Microsoft Word Document.

Music Teacher's Inc. is an educational association for music teachers that has 20,000 members. The association operates from a central HQ but has local membership chapters throughout the US. Monthly meetings are held by the local chapters to discuss recent development on topics of interest to music teachers. The association's journal, Teacher's Forum, is issued monthly with features about recent developments in the field. The association publishes books and reports and also sponsors professional courses that qualify for continuing professional education credit. The association's statement of revenues and expenses for the current year are below: Music Teachers Inc. Statement of Revenue & Expenses for the year ended Nov. 30 Revenues........................................................................$3,275,000 Expenses: Salaries..........................................................................920,000 Personal costs...............................................................230,000 Occupancy costs...........................................................280,000 Reimbursement of member cost to local chapters........600,000 Other member services.................................................500,000 Printing and paper.........................................................320,000 Postage and shipping....................................................176,000 Instuctors' fees ..............................................................80,000 General and admin........................................................38,000 Total Expenses ..............................................................3,144,000 Excess of Revenue over Expenses .............................$131,000 The board of directors of Music Teachers Inc. has requested that a segmented income statement be prepared showing the contribution of each segment to the association. The association has four segments: Membership Division, Magazine Subscription Division, Books and Reports Division, and Continuing Education Division. Mike Doyle has been assigned responsibility for preparing the segmented income statement and he has gathered the following data: a. Membership dues are $100 per year, of which $20 is considered to cover a one year subscription to the association's journal. Other benefits include membership in the association and chapter affiliation. The portion of the dues covering the magazine subscription ($20) should be assigned to the magazine subscription division. b. One year subscription to the Teacher's Forum were sold to members and libraries at $30 per subscription. A total of 2,500 of these subscriptions were sold last year. In addition to subscriptions, the magazine generated $100,000 in advertising revenue. The cost per magazine subscription were $7 for printing and paper and $4 for postage and shipping. c. A total of 28,000 technical reports and professional texts were sold by the books and reports division at an average unit selling price of $25. Average costs per publication were $4 for printing and paper and $2 for postage and shipping. d. The association offers a variety of continuing education courses to both members and non members. The one day course had a tuition cost of $75 each and were attended by 2,400 students. A total of 1,760 studentes took two day courses at a tuition cost of $125 for each student. Outside instructors were paid to teach some courses. e. Salary costs and space occupied were as follows: Salaries Space Occupied (sq. ft.) Membership................. $210,000 2,000 Magazine Subscription..150,000 2,000 Books and reports ........300,000 3,000 Continuing education.....180,000 2,000 Corporate staff ..............80,000 1,000 Total ............................$920,000 10,000 Personal costs are 25% of salaries in the seperate division as well as for the corporate staff. The $280,000 in occupancy costs includes $50,000 in rental cost for a warehouse used by the books and reports division for storage purposes. f. Printing and paper costs other than for magazine subscriptions and for books and reports relate to the continuing educaiton division g. General and admin expenses relate include costs related to overall admin of the association as a whole. The company's corporate staff does some mailing of materials for general admin purposes. The expenses that can be traced or assigned to the corporate staff, as well as any other expenses that are not traceable to the segments, will be treated as common costs, therefore not necessary to distinguish between variable and fixed costs. REQUIRED 1. Prepare a contribution format segmented income statement for Music Teachers Inc. This statement should show the segment margin for each division as well as results for the association as a whole. 2. Give arguments for and against allocating all costs of the association to the four divisions.

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ADM 2341 Lecture Notes - Lecture 11: Operating Expense, Balanced Scorecard, Cost Leadership

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