ACCT 2230 Chapter 11: ACCT2230 Chapter 11 Notes TEXTBOOK + LECTURE NOTES - Fall 2014

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26 Nov 2014

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Decentralized organizations: an organization in which decision making is spread throughout the organization rather than being confined to a few top executives. Traceable fixed costs: fixed costs that can be identified with a particular segment and that arise because of the existence of the segment. Common fixed cost: a fixed cost that supports the operations of more than one segment but is not traceable in whole or in part to any one segment. Segment margin: a segment margin is obtained by deducting a segment"s traceable fixed costs from the segment"s contribution margin. Responsibility centre: and business segment whose manager has control over cost or profit or the use of investment funds. Cost centre: a business segment whose manager has control over revenue or the use of investment funds. Profit centre: a business segment whose manager has control over cost and revenue but no control over the use of investment funds.

Related Questions

1.
Return on investment (ROI) is equal to the margin multipliedby:
A) sales.
B) turnover.
C) average operating assets.
D) residual income.
2.
Delmar Corporation is considering the use of residual income as ameasure of the performance of its divisions. What majordisadvantage of this method should the company consider beforedeciding to institute it?
A) This method does not take into account differences in the sizeof divisions.
B) Investments may be adopted that will decrease the overall returnon investment.
C) The minimum required rate of return may eliminate desirableinvestments.
D) Residual income does not measure how effectively the divisionmanager controls costs.
3.
A company had the following results last year: sales, $700,000;return on investment, 28%; and margin, 8%. The average operatingassets last year were:
A) $200,000
B) $2,450,000
C) $540,000
D) $2,500,000
4.
The Northern Division of the Smith Company had average operatingassets totaling $150,000 last year. If the minimum required rate ofreturn is 12%, and if last year's net operating income at Northernwas $20,000, then the residual income for Northern last yearwas:
A) $20,000
B) $l8,000
C) $5,000
D) $2,000
5.
Kulp Corporation has two major business segments-East and West. InJuly, the East business segment had sales revenues of $900,000,variable expenses of $441,000, and traceable fixed expenses of$171,000. During the same month, the West business segment hadsales revenues of $450,000, variable expenses of $234,000, andtraceable fixed expenses of $45,000. The common fixed expensestotaled $321,000 and were allocated as follows: $180,000 to theEast business segment and $141,000 to the West business segment.The segment margin of the West business segment is:
A) $171,000
B) $675,000
C) $288,000
D) $216,000
6.
Ieso Company has two stores: J and K. During November, Ieso Companyreported a net operating income of $30,000 and sales of $450,000.The contribution margin in Store J was $100,000, or 40% of salesfrom J. The segment margin in Store K was $30,000, or 15% of salesfrom K. Traceable fixed expenses are $60,000 in Store J, and$40,000 in Store K. Sales in Store J totaled:
A) $400,000
B) $250,000
C) $150,000
D) $100,000

erinmuskrat767

EXERCISE 6-16 Working with a Segmented Income Statement; Break-Even Analysis [L06-4, L06-5] Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classi- fies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company's most recent year is given below: Sales ........ Variable expenses .......... Contribution margin ........................... Traceable fixed expenses ....................... Office segment margin .............................. Common fixed expenses not traceable to offices ..... Net operating income ...... Total Company $450,000 100% 225,000 50% 225,000 50% 126,000 28% 99,000 22% 63,000 $ 36,000 8% Office Chicago Minneapolis $150,000 100% $300,000 100% 45,000 30% 180,000 60% 105,000 70% 120,000 40% 78,000 52% 48,000 $ 27,000 18% $ 72,000 24% -16% 1496 Required: 1. Compute the company wide break-even point in dollar sales. Also, compute the break-even point for the Chicago office and for the Minneapolis office. Is the company wide break- even point greater than, less than or equal to the sum of the Chicago and Minneapolis break-even points? Why? By how much would the company's net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns. 3. Refer to the original data. Assume that sales in Chicago increase by $50,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs. a. Prepare a new segmented income statement for the company using the above format. Show both amounts and percentages. b. Observe from the income statement you have prepared that the contribution margin ratio for Chicago has remained unchanged at 70% (the same as in the above data) but that the segment margin ratio has changed. How do you explain the change in the segment mar- gin ratio?

Question 1 10 pts A segment of a business probably should bediscontinued if its contribution margin exceeds its controllablefixed costs and its common costs. it cannot produce a contributionmargin. its common costs exceed its contribution margin. it has anet loss. Flag this Question Question 2 10 pts Contribution marginis calculated by deducting fixed costs from revenue. deductingvariable costs and controllable fixed costs from revenue. deductingvariable costs and common costs from revenue. deducting variablecosts from revenue. Flag this Question Question 3 10 pts Which ofthe following is the first step in the decision-making process?Identify workable alternatives Define the problem Considerappropriate nonfinancial factors Evaluate the cost and revenue dataFlag this Question Question 4 10 pts Fixed manufacturing costs arewritten off as current expenses of the period in which theyoccurred when using direct costing. standard costing. absorptioncosting. differential costing. Flag this Question Question 5 10 ptsDirect costing differs from absorption costing in that underabsorption costing all fixed manufacturing overhead is expensed inthe current period. under direct costing all fixed overhead isexpensed in the current period. under absorption costing anincrease in finished goods inventory does not affect the amount offixed costs expensed. under direct costing a portion of the fixedmanufacturing overhead is included in the finished goods inventory.Flag this Question Question 6 10 pts Which is the final step in thedecision-making process? Evaluate the cost and revenue dataIdentify workable alternatives Consider appropriate nonfinancialfactors Make a decision Flag this Question Question 7 10 pts Whichof the following is NOT a consideration when determining whether tocontinue making a part or to buy that part? the opportunity costthe timing of the cash receipts and expenditures the impact onemployees the sunk cost Flag this Question Question 8 10 pts Coststhat are not directly traceable to a segment of a business arecalled sunk costs. common costs. fixed costs. incremental costs.Flag this Question Question 9 10 pts Which of the following shouldNOT be a consideration when deciding whether to make or buy a part?impact on continued supply of the part impact on quality of thepart under each set of circumstances impact on sales to existingcustomers impact on factory employee morale Flag this QuestionQuestion 10 10 pts In making a decision to replace a machine, whichof the following is not relevant? the variable costs of operatingthe old machine the training that workers will need in order to usethe new machine the book value of the old machine the variablecosts of operating the new machine

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ACCT 2230 Chapter 11: ACCT2230 Chapter 11 Notes TEXTBOOK + LECTURE NOTES - Fall 2014

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