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#1

Marvel Parts, Inc., manufactures auto accessories. One of the company's

products is a set of seat covers that can be adjusted to fit nearly any small car.
The company has a standard cost system in use for all of its products. According
to the standards that have been set for the seat covers, the factory should or!
"#\$ hours each month to produce %,&\$\$ sets of covers. The standard costs
associated ith this level of production are'
Total Per (et
of )overs
*irect materials +,-,%#\$ +%%.#\$
*irect labor +",..% %.#%
/ariable
manufacturing
0based on direct labor1
hours2
+3,,&\$ \$.&\$
+%&.%%

*uring August, the factory or!ed only "#\$ direct labor1hours and produced
%,"\$\$ sets of covers. The folloing actual costs ere recorded during the month'
Total Per (et
of )overs
*irect materials
0#,-3\$ yards2
+&%,."\$ +%..3\$
*irect labor +#,33% ..\$\$
/ariable
manufacturing
+.,3%\$ 3.3&
%".%&

At standard, each set of covers should re4uire . yards of material. All of the
materials purchased during the month ere used in production.
Requirement 1:
)ompute the direct materials price and 4uantity variances for August (Indicate
the efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! Round your ans%ers to the nearest dollar

Materials price
variance
+ + (Click to
select)Favorable
None
Unfavorable
Materials 4uantity
variance
+ + (Click to select)NoneFU
Requirement (:
)ompute the direct labor rate and efficiency variances for August (Indicate the
efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! Round your ans%ers to the nearest dollar

5abor rate variance + + (Click to select)UNoneF
5abor efficiency
variance
+ (Click to
select)Favorable
None
Unfavorable
Requirement ):
)ompute the variable overhead rate and efficiency variances for
August(Indicate the efect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "one" for no efect (i!e!, "ero
variance#! In\$ut all amounts as \$ositive values! &mit the "'" sign in

rate variance
+ (Click to select)None
Unfavorable
Favorable
efficiency variance
+ (Click to select)UNoneF
6%

7rie )ompany manufactures a small )* player called the 8ogging Mate. The
company uses standards to control its costs. The labor standards that have been
set for one 8ogging Mate )* player are as follos'
(tandard
9ours
(tandard :ate per
9our
(tandard )ost
%; minutes +& +%.;
*uring August, #,;-\$ hours of direct labor time ere needed to ma!e 3-,,\$\$
units of the 8ogging Mate. The direct labor cost totaled +,\$,\$-3 for the month.
Requirement 1:
(
a#
<hat direct labor cost should have been incurred to ma!e 3-,,\$\$ units of the
(tandard direct labor
cost
+

(
b#
>y ho much does this differ from the cost that as incurred= (Indicate the
efect of the variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#
Total variance + (Click to
select)NoneUF

Requirement (:
>rea! don the difference in cost from :e4uirement 3 above into a labor rate
variance and a labor efficiency variance. (Indicate the efect of the variance
by selecting "F" for favorable, "U" for unfavorable, and "one" for no
efect (i!e!, "ero variance#! In\$ut all amounts as \$ositive values! &mit

5abor rate variance + (Click to select)FUNone
5abor efficiency
variance
+ (Click to select)UNoneF

Requirement ):
The budgeted variable manufacturing overhead rate is +;., per direct labor1hour.
*uring August, the company incurred +;;,3;# in variable manufacturing
overhead cost. )ompute the variable overhead rate and efficiency variances for
the month. (Indicate the efect of the variance by selecting "F" for
favorable, "U" for unfavorable, and "one" for no efect (i!e!, "ero
variance#! In\$ut all amounts as \$ositive values! &mit the "'" sign in

:ate /ariance
+ (Click to select)NoneUF
7fficiency /ariance
+ (Click to select)UNoneF
6.
9uron )ompany produces a commercial cleaning compound !non as ?oom.
The direct materials and direct labor standards for one unit of ?oom are given
belo'
(tandard @uantity
or 9ours
(tandard Price
or :ate
(tandard
)ost
*irect materials "., pounds +%.- per pound +%3.",
*irect labor \$.. hours +-.# per hour +%.-;

*uring the most recent month, the folloing activity as recorded'
a. %\$,&,\$ pounds of material ere purchased at a cost of +%." per pound.
b. All of the material purchased as used to produce %,,\$\$ units of ?oom.
c. &"\$ hours of direct labor time ere recorded at a total labor cost of +",&.#.
Requirement 1:
)ompute the direct materials price and 4uantity variances for the month.
(Indicate the efect of the variance by selecting "F" for favorable, "U"
for unfavorable, and "one" for no efect (i!e!, "ero variance#!In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#

Materials price
variance
+ (Click to
select)UNoneF
Materials 4uantity
variance
+ (Click to
select)NoneUF

Requirement (:
)ompute the direct labor rate and efficiency variances for the month. (Indicate
the efect of the variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#!In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#

5abor rate variance + (Click to
select)NoneFU
5abor efficiency
variance
+ (Click to
select)UNoneF
6;
*ason Toys, 5td., produces a toy called the MaAe. The company has recently
established a standard cost system to help control costs and has established the
folloing standards for the MaAe toy'

*irect materials' " microns per toy at +\$.. per micron
*irect labor' 3.; hours per toy at +&.# per hour

*uring 8uly, the company produced ;,-\$\$ MaAe toys. Production data for the
month on the toy follo'

*irect
materials:
"3,\$\$\$ microns ere purchased at a cost of +\$.%" per micron.
%#,3%, of these microns ere still in inventory at the end of the
month.
*irect
labor:
",3&\$ direct labor1hours ere or!ed at a cost of +,\$,#.&.

Requirement 1'
)ompute the direct materials price and 4uantity variances for 8uly. (Indicate the
efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! Round your ans%ers to the nearest dollar

Material price
variance
+ (Click to
select)NoneFU
Material 4uantity
variance
+ (Click to
select)UFNone
6,
/ictoria )hocolates, 5td., ma!es premium handcrafted chocolate confections in
5ondon. The oner of the company is setting up a standard cost system and has
collected the folloing data for one of the company's products, the 7mpire
Truffle. This product is made ith the finest hite chocolate and various fillings.
The data belo pertain only to the hite chocolate used in the product 0the
currency is stated in pounds denoted here as B2'

Material
re4uirements,
!ilograms of hite
chocolate per doAen
truffles
\$.#& !ilograms
Alloance for aste,
!ilograms of hite
chocolate per doAen
truffles
\$.\$. !ilograms
Alloance for rejects,
!ilograms of hite
chocolate per doAen
truffles
\$.\$% !ilograms
Purchase price, finest
B3\$ per !ilogram
Purchase discount .C of purchase price
(hipping cost from
the supplier in >elgium
B\$.%, per !ilogram
:eceiving and
handling cost
B\$.3, per !ilogram

Requirement 1:
*etermine the standard price of a !ilogram of hite chocolate. (Round your
ans%er to ( decimal \$laces! &mit the "+" sign in your res\$onse!#
(tandard price B

Requirement (:
*etermine the standard 4uantity of hite chocolate for a doAen truffles. (Round
your ans%er to ( decimal \$laces!#

(tandard 4uantity !ilograms
Requirement ):
*etermine the standard cost of the hite chocolate in a doAen truffles. (Round

(tandard cost B
6&
Management of Mittel :hein AD of EFln, Dermany, ould li!e to reduce the
amount of time beteen hen a customer places an order and hen the order is
shipped. Gor the first 4uarter of operations during the current year the folloing
data ere reported'

Inspection time \$., days
<ait time 0from order
to start of production2
3&." days
Process time %.# days
Move time 3., days
@ueue time ;.. days

Requirement 1:
)ompute the throughput time. (Round your ans%er to 1 decimal \$lace!#

Throughput time days
Requirement (:
)ompute the manufacturing cycle efficiency 0M)72 for the 4uarter. (Round your
ans%er to ( decimal \$laces!#

Manufacturing cycle
efficiency

Requirement ):
<hat percentage of the throughput time as spent in non1value1added activities=
(Round your ans%er to the nearest %hole number! &mit the "," sign in

Throughput time C
Requirement -:
)ompute the delivery cycle time.(Round your ans%er to 1 decimal \$lace!#
*elivery cycle time days
Requirement .:
If by using 5ean Production all 4ueue time during production is eliminated, hat
ill be the ne M)7= (Round your ans%er to ) decimal \$laces!#

Manufacturing cycle
efficiency

6"
5ogistics (olutions provides order fulfillment services for dot.com merchants. The
company maintains arehouses that stoc! items carried by its dot.com clients.
<hen a client receives an order from a customer, the order is forarded to
5ogistics (olutions, hich pulls the item from storage, pac!s it, and ships it to the
customer. The company uses a predetermined variable overhead rate based on
direct labor1hours.

In the most recent month, %\$\$,\$\$\$ items ere shipped to customers using
-,-\$\$ direct labor hours. The company incurred a total of +.\$,3-, in variable

According to the company's standards, \$.\$, direct labor1hours are re4uired to
fulfill an order for one item and the variable overhead rate is +..3 per direct
laborHhour.
(a
#
<hat variable overhead cost should have been incurred to fill the orders for
the %\$\$,\$\$\$ items= (&mit the "'" sign in your res\$onse!#

cost
+

(b
#
9o much does this differ from the actual variable overhead cost= (Indicate
the efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#
Total variable
+ (Click to select)FUNone
0) >rea! don the difference computed in :e4uirement 3 above into a variable
overhead rate variance and a variable overhead efficiency variance. (Indicate
the efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#

rate variance
+ (Click to select)UNoneF
efficiency variance
+ (Click to select)NoneUF
6#
(!y)hefs, Inc., prepares in1flight meals for a number of major airlines. One of the
company's products is grilled salmon in dill sauce ith baby ne potatoes and
spring vegetables. *uring the most recent ee!, the company prepared ",\$\$\$ of
these meals using 3,;.\$ direct labor1hours. The company paid these direct labor
or!ers a total of +3;,&,# for this or!, or +3\$.%, per hour.

According to the standard cost card for this meal, it should re4uire \$.%3 direct
labor1hours at a cost of +3\$ per hour.
(a
#
<hat direct labor cost should have been incurred to prepare ",\$\$\$ meals=

*irect labor cost +

(b
#
9o much does this differ from the actual direct labor cost= (Indicate the
efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#
Total direct labor
variance
+ (Click to select)UNoneF
0) >rea! don the difference computed in :e4uirement 3 above into a labor
rate variance and a labor efficiency variance. (Indicate the efect of each
variance by selecting "F" for favorable, "U" for unfavorable, and "one"
for no efect (i!e!, "ero variance#! In\$ut all amounts as \$ositive values!

5abor rate variance + (Click to select)UNoneF
5abor efficiency
variance
+ (Click to select)UFNone
6-
>andar Industries >erhad of Malaysia manufactures sporting e4uipment. One of
the company's products, a football helmet for the Iorth American mar!et,
re4uires a special plastic. *uring the 4uarter ending 8une .\$, the company
manufactured .",\$\$\$ helmets, using %%,-;\$ !ilograms of plastic. The plastic cost
the company :M3-",%#;. 0The currency in Malaysia is the ringgit, hich is
denoted here by :M.2
According to the standard cost card, each helmet should re4uire \$.,;
!ilograms of plastic, at a cost of :M- per !ilogram.
Requirement 1:
(a
#
<hat cost for plastic should have been incurred to ma!e .",\$\$\$ helmets=

)ost incurred :M
(b
#
9o much greater or less is this than the cost that as incurred= (&mit the
(tandard cost is (Click to select)greaterless by :M than the actual cost incurred.

Requirement (:
>rea! don the difference computed in :e4uirement 3 above into a materials
price variance and a materials 4uantity variance. (Indicate the efect of each
variance by selecting "F" for favorable, "U" for unfavorable, and "one"
for no efect (i!e!, "ero variance#! In\$ut all amounts as \$ositive values!

Materials price
variance
:M (Click to select)UFNone
Materials 4uantity
variance
:M (Click to select)UNoneF
63\$
)ompanhia >radesco, (.A., of >raAil, an industrial supply store chain, has to
divisions. The company's contribution format income statement segmented by
divisions for last year is given belo 0the currency in >raAil is the real, denoted
here by :2'
*ivision
Total )ompany Plastics Dlass
(ales :.,;--,-\$\$ :%,\$\$3,\$\$\$ :3,;-#,-\$\$
/ariable eJpenses 3,"3;,\$,3 -&\$,;#\$ ",.,,"3
)ontribution margin 3,"#,,#;- 3,\$;\$,,%\$ ";,,.%-
Traceable fiJed
eJpenses'

Advertising &\$-,%\$\$ %-",\$\$\$ .3%,%\$\$
*epreciation %%&,.\$\$ 33.,\$\$\$ 33.,.\$\$
Administration ;.;,-,- %3\$,\$\$\$ %%;,-,-
Total 3,%"\$,;,- &%\$,\$\$\$ &,\$,;,-
*ivision segment
margin
,3,,.-\$ :;%\$,,%\$ :-;,#"\$
)ommon fiJed
eJpenses
.#",\$\$\$
Iet operating income :3%#,.-\$
Top management doesn't understand hy the Dlass *ivision has such a lo
segment margin hen its sales are only %, less than sales in the Plastics
*ivision. Accordingly, management has directed that the Dlass *ivision be
further segmented into product lines. The folloing information is available on the
product lines in the Dlass *ivision'
Dlass *ivision Product 5ines
Glat Dlass Auto Dlass (pecialty
Dlass
(ales :,\$.,\$\$\$ "\$3,-\$\$ %-;,\$\$\$
Traceable fiJed
eJpenses'

Advertising :#\$,;\$\$ :33%,;\$\$ :33-,;\$\$
*epreciation :%;,-\$\$ :,,,"\$\$ :.%,"\$\$
Administration :%-,&\$\$ :.,,3\$\$ :;3,"\$\$
/ariable eJpenses as
a percentage of sales
&,C .-C ,%C
Analysis shos that :33#,,,- of the Dlass *ivision's administration eJpenses
are common to the product lines.
Requirement 1:
Prepare a contribution format segmented income statement for the Dlass
*ivision ith segments defined as product lines. (egative amounts other
than the e0\$enses should be indicated by a minus sign! &mit the "R"
Product 5ine
Dlass
*ivision
Glat Dlass Auto Dlass (pecialty
Dlass
(ales : : : :
/ariable eJpenses
)ontribution
margin

Traceable fiJed
eJpenses'

*epreciation
Total
Product line
segment margin
: : :
)ommon fiJed
eJpenses

*ivisional segment
margin
:
Requirement (:
Management is surprised by (pecialty Dlass's poor shoing and ould li!e to
have the product line segmented by mar!et. The folloing information is
available about the to mar!ets in hich (pecialty Dlass is sold'
(pecialty Dlass Mar!ets

*omestic Goreign
(ales :3-&,\$\$\$ :-#,\$\$\$
Traceable fiJed
eJpenses'

/ariable eJpenses as
a percentage of sales
;.C "\$C
All of (pecialty Dlass's depreciation and administration eJpenses are common to
the mar!ets in hich the product is sold. )alculate the folloing for the (pecialty
Dlass product line ith segments defined as mar!ets. (egative amounts
should be indicated by a minus sign! &mit the "R" sign in your
res\$onse!#
*omestic mar!et
segment margin
:
Goreign mar!et
segment margin
:
Product line segment
margin
:
Requirement ):
(a
#
:efer to the statement prepared in 0:e4uirement 32 above. The sales manager
ants to run a special promotional campaign on one of the product lines over
the neJt month. A mar!et study indicates that such a campaign ould increase
sales of Glat Dlass by :%\$\$,\$\$\$ or sales of Auto Dlass by :3;&,\$\$\$. The
campaign ould cost :%-,\$\$\$. )alculate the increased net operating income.
Glat Dlass Auto Dlass
Iet operating income : :
(b
#
<hich product line should be chosen=

(Click to select)Auto Glass Flat Glass
633
<ingate )ompany, a holesale distributor of videotapes, has been eJperiencing
losses for some time, as shon by its most recent monthly contribution format
income statement, hich follos'

(ales +3,,%\$,\$\$\$
/ariable eJpenses ,;;,&\$\$
)ontribution margin -",,;\$\$
GiJed eJpenses 3,\$".,\$\$\$
Iet operating income
0loss2
1+-",&\$\$

In an effort to isolate the problem, the president has as!ed for an income
statement segmented by division. Accordingly, the Accounting *epartment has
developed the folloing information'

*ivision
7ast )entral <est
(ales +;&\$,\$\$\$ +&\$\$,\$\$\$ +;&\$,\$\$\$
/ariable eJpenses as
a
percentage of sales
,%C %3C .-C
Traceable fiJed
eJpenses
+3\$",\$\$\$ +.%3,\$\$\$ +%\$#,\$\$\$

Requirement 1:
Prepare a contribution format income statement segmented by divisions, as
desired by the president. (In\$ut all amount as \$ositive value e0ce\$t
divisional segment loss and net o\$erating loss %hich should be
indicated %ith a minus sign! &mit the "'" sign in your res\$onse!#

*ivision
Total
)ompany
7ast )entral <est
(ales + + + +
/ariable
eJpenses

)ontribution
margin

Traceable fiJed
eJpenses

*ivisional
segment margin
+ + +
)ommon fiJed
eJpenses not
traceable to
divisions

Iet operating
(Click to
select)incomeloss
+

Requirement (:

(a
#
As a result of a mar!eting study, the president believes that sales in the <est
*ivision could be increased by 3;C if monthly advertising in that division ere
increased by +%3,\$\$\$. )ompute the Incremental net operating income.
(egative amount should be indicated by a minus sign! &mit the "'"

Incremental net
operating income
+

(b
#
<ould you recommend the increased advertising=
(Click to select)NoYes
63%
:aner, 9arris, K )han is a consulting firm that specialiAes in information systems
for medical and dental clinics. The firm has to offices1one in )hicago and one in
Minneapolis. The firm classifies the direct costs of consulting jobs as variable
costs.
Assume that Minneapolis' sales by major mar!et are as follos'
Mar!et
Minneapolis Medical *ental
(ales +,3\$,\$\$\$ 3\$\$C +.;\$,\$\$\$ 3\$\$C +3"\$,\$\$\$ 3\$\$C
/ariable eJpenses .\$&,\$\$\$ &\$C %%3,\$\$\$ &,C #,,\$\$\$ ,\$C
)ontribution margin %\$;,\$\$\$ ;\$C 33-,\$\$\$ .,C #,,\$\$\$ ,\$C
Traceable fiJed
eJpenses
&3,%\$\$ 3%C 3",\$\$\$ ,C ;;,%\$\$ %&C
Mar!et segment
margin
3;%,#\$\$ %#C +3\$%,\$\$\$ .\$C +;\$,#\$\$ %;C
)ommon fiJed
eJpenses
not traceable to
mar!ets
3,,.\$\$ .C
Office segment
margin
+3%",,\$\$ %,C

The company ould li!e to initiate an intensive advertising campaign in one of
the to mar!ets during the neJt month. The campaign ould cost +&,#\$\$.
Mar!eting studies indicate that such a campaign ould increase sales in the
Medical mar!et by +,-,,\$\$ or increase sales in the *ental mar!et by +,3,\$\$\$.
Required:
*etermine the increase in net operating income in each mar!et if the advertising
campaign ere to be initiated in that mar!et. (&mit the "'" sign in your
res\$onse!#
Medical *ental
Increase in net
operating income
+ +
63.
:aner, 9arris, K )han is a consulting firm that specialiAes in information systems
for medical and dental clinics. The firm has to officesLone in )hicago and one
in Minneapolis. The firm classifies the direct costs of consulting jobs as variable
costs. A contribution format income statement for the company's most recent
year is given belo'

Office
Total )ompany )hicago Minneapolis
(ales +3,\$,\$,\$\$
\$
3\$\$C +%3\$,\$\$\$ 3\$\$C +#;\$,\$\$\$ 3\$\$C
/ariable eJpenses ,&",\$\$\$ ,;C &.,\$\$\$ .\$C ,\$;,\$\$\$ &\$C
)ontribution margin ;#.,\$\$\$ ;&C 3;",\$\$\$ "\$C ..&,\$\$\$ ;\$C
Traceable fiJed
eJpenses
%.,,%\$\$ %%C 3\$-,%\$\$ ,%C 3%&,\$\$\$ 3,C
Office segment
margin
%;",#\$\$ %;C +.",#\$\$ 3#C +%3\$,\$\$\$ %,C
)ommon fiJed
eJpenses not
traceable to offices
3&#,\$\$\$ 3&C
Iet operating income +"-,#\$\$ #C
Requirement 1:
>y ho much ould the company's net operating income increase if Minneapolis
increased its sales by +3\$,,\$\$\$ per year= Assume no change in cost behavior

Iet operating income +
:efer to the original data. Assume that sales in )hicago increase by +"\$,\$\$\$
neJt year and that sales in Minneapolis remain unchanged. Assume no change in
fiJed costs. Prepare a ne segmented income statement for the company.
(Round your \$ercentage amounts to ( decimal \$laces! In\$ut all amount
as \$ositive value! &mit the "'" and "," signs in your res\$onse!#

(egments
Total )ompany )hicago Minneapolis
Amount C Amount C Amount C
(ales + + +
/ariable
eJpenses

)ontribution
margin

Traceable
fiJed
eJpenses

Office
segment
margin
+ +
)ommon
fiJed
eJpenses
not
traceable to
segments

Iet
operating
income
+
63;
(elected sales and operating data for three divisions of different structural
engineering firms are given as follos'

*ivision A *ivision > *ivision )
(ales +,,3\$\$,\$\$\$ +-,\$\$\$,\$\$\$ +#,&\$\$,\$\$\$
Average operating
assets
+3,,-\$,\$\$\$ +,,-\$\$,\$\$\$ +3,,\$\$,\$\$\$
Iet operating income +.\$,,\$\$\$ +#-&,\$\$\$ +..\$,\$\$\$
Minimum re4uired
rate of return
%\$C %.C %%C
Requirement 1:
)ompute the return on investment 0:OI2 for each division using the formula
stated in terms of margin and turnover. (Round all calculations to ( decimal
\$laces, e!g!, !1()- as 1(!)-! &mit the "," sign in your res\$onse!#

:OI
*ivision A C
*ivision > C
*ivision ) C
)ompute the residual income for each division. (1eave no cells blan2, be
certain to enter "3" %herever required! egative amounts should be
indicated by a minus sign! &mit the "'" sign in your res\$onse!#

*ivision A *ivision > *ivision )
:esidual income + + +
63,
(elected operating data for to divisions of Outbac! >reing, 5td., of Australia
are given belo 0the currency is the Australian dollar, denoted here as +2'
*ivision
@ueensland Ie (outh
<ales
(ales +3,\$\$\$,\$\$\$ +3,",\$,\$\$\$
Average operating
assets
+,\$\$,\$\$\$ +,\$\$,\$\$\$
Iet operating income +-\$,\$\$\$ +3\$,,\$\$\$
Property, plant, and
e4uipment 0net2
+%,\$,\$\$\$ +%\$\$,\$\$\$

Requirement 1:
)ompute the rate of return for each division using the return on investment 0:OI2
formula stated in terms of margin and turnover. (Round all calculations to (
:OI
@ueensland C
Ie (outh <ales C

Requirement (:
<hich divisional manager seems to be doing the better job=
(Click to select) New South WalesQueensland
#16
Meiji Isetan )orp. of 8apan has to regional divisions ith head4uarters in
Osa!a and Mo!ohama. (elected data on the to divisions follo 0in millions of
yen, denoted by N2'
*ivision
Osa!a Mo!ohama
(ales N#,,\$\$,\$\$\$ N%\$,-\$\$,\$\$\$
Iet operating income N-%\$,\$\$\$ N%,,"\$,\$\$\$
Average operating
assets
N%,#\$\$,\$\$\$ N#,.\$\$,\$\$\$

Requirement 1:
Gor each division, compute the return on investment 0:OI2 in terms of margin and
turnover. (Round your ans%ers to ( decimal \$laces! &mit the "," sign in
Osa!a Mo!ohama
:eturn on investment C C

Requirement (:
Assume that the company evaluates performance using residual income and that
the minimum re4uired rate of return for any division is %\$C. )ompute the residual
income for each division. (&mit the "4" sign in your res\$onse!#
Osa!a Mo!ohama
:esidual income N N

Requirement ):
Is Mo!ohama's greater amount of residual income an indication that it is better
managed=
(Click to select)YesNo
63"
:oyal 5ancare )ompany produces and sells to pac!aged products, <eedban
and Dreengro. :evenue and cost information relating to the products follo'
Product
<eedban Dreengro
(elling price per unit +3\$.\$\$ +...\$\$
/ariable eJpenses per
unit
+..\$\$ +3;.\$\$
Traceable fiJed
eJpenses per year
+3%#,\$\$\$ +;-,\$\$\$

)ommon fiJed eJpenses in the company total +333,\$\$\$ annually. 5ast year the
company produced and sold .#,,\$\$ units of <eedban and %3,\$\$\$ units of
Dreengro.
Required:
Prepare a contribution format income statement for the year segmented by
product lines. (In\$ut all amount as \$ositive value! &mit the "'" sign in
Total <eedban Dreengro
(ales + + +
/ariable eJpenses
)ontribution margin
Traceable fiJed
eJpenses

Product line segment
margin
+ +
)ommon fiJed
eJpenses not
traceable to products

Iet operating income +
63#
>andar Industries >erhad of Malaysia manufactures sporting e4uipment. One of
the company's products, a football helmet for the Iorth American mar!et,
re4uires a special plastic. *uring the 4uarter ending 8une .\$, the company
manufactured ;.,\$\$\$ helmets, using %;,-;\$ !ilograms of plastic. The plastic cost
the company :M3#-,,;;. 0The currency in Malaysia is the ringgit, hich is
denoted here by :M.2
According to the standard cost card, each helmet should re4uire \$., !ilograms
of plastic, at a cost of :M# per !ilogram.
Requirement 1:
(a
#
<hat cost for plastic should have been incurred to ma!e ;.,\$\$\$ helmets=

)ost incurred :M
(b
#
9o much greater or less is this than the cost that as incurred= (&mit the
(tandard cost is (Click to select)lessgreater by :M than the actual cost incurred.

Requirement (:
>rea! don the difference computed in :e4uirement 3 above into a materials
price variance and a materials 4uantity variance. (Indicate the efect of each
variance by selecting "F" for favorable, "U" for unfavorable, and "one"
for no efect (i!e!, "ero variance#! In\$ut all amounts as \$ositive values!

Materials price
variance
:M (Click to select)NoneFU
Materials 4uantity
variance
:M (Click to select)UNoneF
63-
(!y)hefs, Inc., prepares in1flight meals for a number of major airlines. One of the
company's products is grilled salmon in dill sauce ith baby ne potatoes and
spring vegetables. *uring the most recent ee!, the company prepared 3;,\$\$\$
of these meals using .,;&\$ direct labor1hours. The company paid these direct
labor or!ers a total of +..,\$;. for this or!, or +-.,, per hour.

According to the standard cost card for this meal, it should re4uire \$.%, direct
labor1hours at a cost of +-.. per hour.
Requirement 1:
(a
#
<hat direct labor cost should have been incurred to prepare 3;,\$\$\$ meals=

*irect labor cost +

(b
#
9o much does this differ from the actual direct labor cost= (Indicate the
efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#
Total direct labor
variance
+ (Click to select)FNoneU
Requirement (:
>rea! don the difference computed in :e4uirement 3 above into a labor rate
variance and a labor efficiency variance. (Indicate the efect of each
variance by selecting "F" for favorable, "U" for unfavorable, and "one"
for no efect (i!e!, "ero variance#! In\$ut all amounts as \$ositive values!

5abor rate variance + (Click to select)NoneUF
5abor efficiency
variance
+ (Click to select)NoneUF
6%\$
5ogistics (olutions provides order fulfillment services for dot.com merchants. The
company maintains arehouses that stoc! items carried by its dot.com clients.
<hen a client receives an order from a customer, the order is forarded to
5ogistics (olutions, hich pulls the item from storage, pac!s it, and ships it to the
customer. The company uses a predetermined variable overhead rate based on
direct labor1hours.

In the most recent month, 3"\$,\$\$\$ items ere shipped to customers using
&,"\$\$ direct labor hours. The company incurred a total of +%.,33, in variable

According to the company's standards, \$.\$; direct labor1hours are re4uired to
fulfill an order for one item and the variable overhead rate is +.., per direct
laborHhour.
Requirement 1:
(a
#
<hat variable overhead cost should have been incurred to fill the orders for
the 3"\$,\$\$\$ items= (&mit the "'" sign in your res\$onse!#

cost
+

(b
#
9o much does this differ from the actual variable overhead cost= (Indicate
the efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#
Total variable
+ (Click to select)FNoneU
Requirement (:
>rea! don the difference computed in :e4uirement 3 above into a variable
overhead rate variance and a variable overhead efficiency variance. (Indicate
the efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#

rate variance
+ (Click to select)NoneFU
efficiency variance
+ (Click to select)UFNone
6%3
Management of Mittel :hein AD of EFln, Dermany, ould li!e to reduce the
amount of time beteen hen a customer places an order and hen the order is
shipped. Gor the first 4uarter of operations during the current year the folloing
data ere reported'

Inspection time \$.; days
<ait time 0from order
to start of production2
3,.# days
Process time %." days
Move time \$.& days
@ueue time ..- days

Requirement 1:
)ompute the throughput time. (Round your ans%er to 1 decimal \$lace!#

Throughput time days
Requirement (:
)ompute the manufacturing cycle efficiency 0M)72 for the 4uarter. (Round your
ans%er to ( decimal \$laces!#

Manufacturing cycle
efficiency

Requirement ):
<hat percentage of the throughput time as spent in non1value1added activities=
(Round your ans%er to the nearest %hole number! &mit the "," sign in

Throughput time C
Requirement -:
)ompute the delivery cycle time.(Round your ans%er to 1 decimal \$lace!#
*elivery cycle time days
Requirement .:
If by using 5ean Production all 4ueue time during production is eliminated, hat
ill be the ne M)7= (Round your ans%er to ) decimal \$laces!#

Manufacturing cycle
efficiency

6%%
/ictoria )hocolates, 5td., ma!es premium handcrafted chocolate confections in
5ondon. The oner of the company is setting up a standard cost system and has
collected the folloing data for one of the company's products, the 7mpire
Truffle. This product is made ith the finest hite chocolate and various fillings.
The data belo pertain only to the hite chocolate used in the product 0the
currency is stated in pounds denoted here as B2'

Material
re4uirements,
!ilograms of hite
chocolate per doAen
truffles
\$."; !ilograms
Alloance for aste,
!ilograms of hite
chocolate per doAen
truffles
\$.\$% !ilograms
Alloance for rejects,
!ilograms of hite
chocolate per doAen
truffles
\$.\$3 !ilograms
Purchase price, finest
B- per !ilogram
Purchase discount &C of purchase price
(hipping cost from
the supplier in >elgium
B\$.;, per !ilogram
:eceiving and
handling cost
B\$.3 per !ilogram

Requirement 1:
*etermine the standard price of a !ilogram of hite chocolate. (Round your
ans%er to ( decimal \$laces! &mit the "+" sign in your res\$onse!#
(tandard price B

Requirement (:
*etermine the standard 4uantity of hite chocolate for a doAen truffles. (Round
your ans%er to ( decimal \$laces!#

(tandard 4uantity !ilograms
Requirement ):
*etermine the standard cost of the hite chocolate in a doAen truffles. (Round

(tandard cost B
6%.
*ason Toys, 5td., produces a toy called the MaAe. The company has recently
established a standard cost system to help control costs and has established the
folloing standards for the MaAe toy'

*irect materials' & microns per toy at +\$... per micron
*irect labor' 3., hours per toy at +&.- per hour

*uring 8uly, the company produced ;,&\$\$ MaAe toys. Production data for the
month on the toy follo'

*irect
materials:
".,\$\$\$ microns ere purchased at a cost of +\$.%- per micron.
.#,,\$\$ of these microns ere still in inventory at the end of the
month.
*irect
labor:
",.\$\$ direct labor1hours ere or!ed at a cost of +,%,,&\$.
Requirement 1'
)ompute the direct materials price and 4uantity variances for 8uly. (Indicate the
efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! Round your ans%ers to the nearest dollar

Material price
variance
+ (Click to
select)NoneFU
Material 4uantity
variance
+ (Click to
select)UNoneF
6%;
9uron )ompany produces a commercial cleaning compound !non as ?oom.
The direct materials and direct labor standards for one unit of ?oom are given
belo'
(tandard @uantity
or 9ours
(tandard Price
or :ate
(tandard
)ost
*irect materials "., pounds +. per pound +%%.,
*irect labor \$.. hours +3\$.; per hour +..3%

*uring the most recent month, the folloing activity as recorded'
a. %3,3\$\$ pounds of material ere purchased at a cost of +%.- per pound.
b. All of the material purchased as used to produce %,&\$\$ units of ?oom.
c. "\$\$ hours of direct labor time ere recorded at a total labor cost of +#,&3\$.
Requirement 1:
)ompute the direct materials price and 4uantity variances for the month.
(Indicate the efect of the variance by selecting "F" for favorable, "U"
for unfavorable, and "one" for no efect (i!e!, "ero variance#!In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#

Materials price
variance
+ (Click to
select)UNoneF
Materials 4uantity
variance
+ (Click to
select)NoneFU

Requirement (:
)ompute the direct labor rate and efficiency variances for the month. (Indicate
the efect of the variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#!In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#

5abor rate variance + (Click to
select)UFNone
5abor efficiency
variance
+ (Click to
select)UFNone
6%,
7rie )ompany manufactures a small )* player called the 8ogging Mate. The
company uses standards to control its costs. The labor standards that have been
set for one 8ogging Mate )* player are as follos'
(tandard
9ours
(tandard :ate per
9our
(tandard )ost
.\$ minutes +,.; +%."
*uring August, 3\$,%%\$ hours of direct labor time ere needed to ma!e 3-,;\$\$
units of the 8ogging Mate. The direct labor cost totaled +,.,3;; for the month.
Requirement 1:
(
a#
<hat direct labor cost should have been incurred to ma!e 3-,;\$\$ units of the
(tandard direct labor
cost
+

(
b#
>y ho much does this differ from the cost that as incurred= (Indicate the
efect of the variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! &mit the "'" sign in your res\$onse!#
Total variance + (Click to
select)UFNone

Requirement (:
>rea! don the difference in cost from :e4uirement 3 above into a labor rate
variance and a labor efficiency variance. (Indicate the efect of the variance
by selecting "F" for favorable, "U" for unfavorable, and "one" for no
efect (i!e!, "ero variance#! In\$ut all amounts as \$ositive values! &mit

5abor rate variance + (Click to select)NoneUF
5abor efficiency
variance
+ (Click to select)NoneFU

Requirement ):
The budgeted variable manufacturing overhead rate is +;., per direct labor1hour.
*uring August, the company incurred +,3,3\$\$ in variable manufacturing
overhead cost. )ompute the variable overhead rate and efficiency variances for
the month. (Indicate the efect of the variance by selecting "F" for
favorable, "U" for unfavorable, and "one" for no efect (i!e!, "ero
variance#! In\$ut all amounts as \$ositive values! &mit the "'" sign in

:ate /ariance
+ (Click to select)FNoneU
7fficiency /ariance
+ (Click to select)NoneFU
6%&
Marvel Parts, Inc., manufactures auto accessories. One of the company's
products is a set of seat covers that can be adjusted to fit nearly any small car.
The company has a standard cost system in use for all of its products. According
to the standards that have been set for the seat covers, the factory should or!
"#\$ hours each month to produce 3,-,\$ sets of covers. The standard costs
associated ith this level of production are'
Total Per (et
of )overs
*irect materials +.#,&3\$ +3-.#\$
*irect labor +&,-;% ..,&
/ariable
manufacturing
0based on direct labor1
hours2
+%,.;\$ 3.%\$
+%;.,&

*uring August, the factory or!ed only "-\$ direct labor1hours and produced
%,3\$\$ sets of covers. The folloing actual costs ere recorded during the month'
Total Per (et
of )overs
*irect materials
0&,,3\$ yards2
+.-,\$&\$ +3#.&\$
*irect labor +",-\$\$ .."&
/ariable
manufacturing
+;,";\$ %.%&
%;.&%

At standard, each set of covers should re4uire . yards of material. All of the
materials purchased during the month ere used in production.
Requirement 1:
)ompute the direct materials price and 4uantity variances for August (Indicate
the efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! Round your ans%ers to the nearest dollar

Materials price
variance
+ (Click to select)UNoneF
Materials 4uantity
variance
+ (Click to select)NoneFU
Requirement (:
)ompute the direct labor rate and efficiency variances for August (Indicate the
efect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "one" for no efect (i!e!, "ero variance#! In\$ut all
amounts as \$ositive values! Round your ans%ers to the nearest dollar

5abor rate variance + (Click to select)FNoneU
5abor efficiency
variance
+ (Click to select)UNoneF
Requirement ):
)ompute the variable overhead rate and efficiency variances for
August(Indicate the efect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "one" for no efect (i!e!, "ero
variance#! In\$ut all amounts as \$ositive values! &mit the "'" sign in

rate variance
+ (Click to select)NoneFU
efficiency variance
+ (Click to select)NoneUF
6%"
:oyal 5ancare )ompany produces and sells to pac!aged products, <eedban
and Dreengro. :evenue and cost information relating to the products follo'
Product
<eedban Dreengro
(elling price per unit +#.\$\$ +.,.\$\$
/ariable eJpenses per
unit
+%.-\$ +3\$.\$\$
Traceable fiJed
eJpenses per year
+3.,,\$\$\$ +,\$,\$\$\$
)ommon fiJed eJpenses in the company total +-&,\$\$\$ annually. 5ast year the
company produced and sold ;.,,\$\$ units of <eedban and %%,,\$\$ units of
Dreengro.
Required:
Prepare a contribution format income statement for the year segmented by
product lines. (In\$ut all amount as \$ositive value! &mit the "'" sign in
Total <eedban Dreengro
(ales + + +
/ariable eJpenses
)ontribution margin
Traceable fiJed
eJpenses

Product line segment
margin
+ +
)ommon fiJed
eJpenses not
traceable to products

Iet operating income +
6%#
Meiji Isetan )orp. of 8apan has to regional divisions ith head4uarters in
Osa!a and Mo!ohama. (elected data on the to divisions follo 0in millions of
yen, denoted by N2'
*ivision
Osa!a Mo!ohama
(ales N-,,\$\$,\$\$\$ N3-,&\$\$,\$\$\$
Iet operating income N-.\$,\$\$\$ N%,&"\$,\$\$\$
Average operating
assets
N%,#\$\$,\$\$\$ N-,;\$\$,\$\$\$

Requirement 1:
Gor each division, compute the return on investment 0:OI2 in terms of margin and
turnover. (Round your ans%ers to ( decimal \$laces! &mit the "," sign in
Osa!a Mo!ohama
:eturn on investment C C

Requirement (:
Assume that the company evaluates performance using residual income and that
the minimum re4uired rate of return for any division is 3.C. )ompute the residual
income for each division. (&mit the "4" sign in your res\$onse!#
Osa!a Mo!ohama
:esidual income N N

Requirement ):
Is Mo!ohama's greater amount of residual income an indication that it is better
managed=
(Click to select)NoYes
6%-
(elected operating data for to divisions of Outbac! >reing, 5td., of Australia
are given belo 0the currency is the Australian dollar, denoted here as +2'
*ivision
@ueensland Ie (outh
<ales
(ales +3,\$\$\$,\$\$\$ +3,.,\$,\$\$\$
Average operating
assets
+%,\$,\$\$\$ +",\$,\$\$\$
Iet operating income +&\$,\$\$\$ +3;#,,\$\$
Property, plant, and
e4uipment 0net2
+%&\$,\$\$\$ +%%\$,\$\$\$

Requirement 1:
)ompute the rate of return for each division using the return on investment 0:OI2
formula stated in terms of margin and turnover. (Round all calculations to (
:OI
@ueensland C
Ie (outh <ales C

Requirement (:
<hich divisional manager seems to be doing the better job=
(Click to select) Queensland New South Wales
#30
(elected sales and operating data for three divisions of different structural
engineering firms are given as follos'

*ivision A *ivision > *ivision )
(ales +&,3\$\$,\$\$\$ +3\$,&\$\$,\$\$\$ +#,,\$\$,\$\$\$
Average operating
assets
+3,,-\$,\$\$\$ +,,\$\$\$,\$\$\$ +%,.\$\$,\$\$\$
Iet operating income +%-3,\$\$\$ +#-;,\$\$\$ +%"&,\$\$\$
Minimum re4uired
rate of return
3\$C 3.C 3%C

Requirement 1:
)ompute the return on investment 0:OI2 for each division using the formula
stated in terms of margin and turnover. (Round all calculations to ( decimal
\$laces, e!g!, !1()- as 1(!)-! &mit the "," sign in your res\$onse!#

:OI
*ivision A C
*ivision > C
*ivision ) C
Requirement (:
)ompute the residual income for each division. (1eave no cells blan2, be
certain to enter "3" %herever required! egative amounts should be
indicated by a minus sign! &mit the "'" sign in your res\$onse!#

*ivision A *ivision > *ivision )
:esidual income + + +
6.3
:aner, 9arris, K )han is a consulting firm that specialiAes in information systems
for medical and dental clinics. The firm has to officesLone in )hicago and one
in Minneapolis. The firm classifies the direct costs of consulting jobs as variable
costs. A contribution format income statement for the company's most recent
year is given belo'

Office
Total )ompany )hicago Minneapolis
(ales +&\$\$,\$\$\$ 3\$\$C +3%\$,\$\$\$ 3\$\$C +;#\$,\$\$\$ 3\$\$C
/ariable eJpenses .%;,\$\$\$ ,;C .&,\$\$\$ .\$C %##,\$\$\$ &\$C
)ontribution margin %"&,\$\$\$ ;&C #;,\$\$\$ "\$C 3-%,\$\$\$ ;\$C
Traceable fiJed
eJpenses
3.;,;\$\$ %%C &%,;\$\$ ,%C "%,\$\$\$ 3,C
Office segment
margin
3;3,&\$\$ %;C +%3,&\$\$ 3#C +3%\$,\$\$\$ %,C
)ommon fiJed
eJpenses not
traceable to offices
-&,\$\$\$ 3&C
Iet operating income +;,,&\$\$ #C
Requirement 1:
>y ho much ould the company's net operating income increase if Minneapolis
increased its sales by +&\$,\$\$\$ per year= Assume no change in cost behavior

Iet operating income +
Requirement (:
:efer to the original data. Assume that sales in )hicago increase by +;\$,\$\$\$
neJt year and that sales in Minneapolis remain unchanged. Assume no change in
fiJed costs. Prepare a ne segmented income statement for the company.
(Round your \$ercentage amounts to ( decimal \$laces! In\$ut all amount
as \$ositive value! &mit the "'" and "," signs in your res\$onse!#

(egments
Total )ompany )hicago Minneapolis
Amount C Amount C Amount C
(ales + + +
/ariable
eJpenses

)ontribution
margin

Traceable
fiJed
eJpenses

Office
segment
margin
+ +
)ommon
fiJed
eJpenses
not
traceable to
segments

Iet
operating
income
+
6.%
:aner, 9arris, K )han is a consulting firm that specialiAes in information systems
for medical and dental clinics. The firm has to offices1one in )hicago and one in
Minneapolis. The firm classifies the direct costs of consulting jobs as variable
costs.
Assume that Minneapolis' sales by major mar!et are as follos'
Mar!et
Minneapolis Medical *ental
(ales +&-\$,\$\$\$ 3\$\$C +;&\$,\$\$\$ 3\$\$C +%.\$,\$\$\$ 3\$\$C
/ariable eJpenses ;3;,\$\$\$ &\$C %--,\$\$\$ &,C 33,,\$\$\$ ,\$C
)ontribution margin %"&,\$\$\$ ;\$C 3&3,\$\$\$ .,C 33,,\$\$\$ ,\$C
Traceable fiJed
eJpenses
#%,#\$\$ 3%C %.,\$\$\$ ,C ,-,#\$\$ %&C
Mar!et segment
margin
3-.,%\$\$ %#C +3.#,\$\$\$ .\$C +,,,%\$\$ %;C
)ommon fiJed
eJpenses
not traceable to
mar!ets
%\$,"\$\$ .C
Office segment
margin
+3"%,,\$\$ %,C

The company ould li!e to initiate an intensive advertising campaign in one of
the to mar!ets during the neJt month. The campaign ould cost +-,%\$\$.
Mar!eting studies indicate that such a campaign ould increase sales in the
Medical mar!et by +#\$,,\$\$ or increase sales in the *ental mar!et by +&-,\$\$\$.
Required:
*etermine the increase in net operating income in each mar!et if the advertising
campaign ere to be initiated in that mar!et. (&mit the "'" sign in your
res\$onse!#
Medical *ental
Increase in net
operating income
+ +
6..
<ingate )ompany, a holesale distributor of videotapes, has been eJperiencing
losses for some time, as shon by its most recent monthly contribution format
income statement, hich follos'

(ales +3,.;\$,\$\$\$
/ariable eJpenses ,3.,%\$\$
)ontribution margin #%&,#\$\$
GiJed eJpenses -\$-,\$\$\$
Iet operating income
0loss2
1+#%,%\$\$

In an effort to isolate the problem, the president has as!ed for an income
statement segmented by division. Accordingly, the Accounting *epartment has
developed the folloing information'

*ivision
7ast )entral <est
(ales +.3\$,\$\$\$ +,"\$,\$\$\$ +;&\$,\$\$\$
/ariable eJpenses as
a
percentage of sales
;#C %&C ;"C
Traceable fiJed
eJpenses
+3\$#,\$\$\$ +.%",\$\$\$ +%\$\$,\$\$\$

Requirement 1:
Prepare a contribution format income statement segmented by divisions, as
desired by the president. (In\$ut all amount as \$ositive value e0ce\$t
divisional segment loss and net o\$erating loss %hich should be
indicated %ith a minus sign! &mit the "'" sign in your res\$onse!#

*ivision
Total
)ompany
7ast )entral <est
(ales + + + +
/ariable
eJpenses

)ontribution
margin

Traceable fiJed
eJpenses

*ivisional
segment margin
+ + +
)ommon fiJed
eJpenses not
traceable to
divisions

Iet operating
(Click to
select)lossincome
+

Requirement (:

(a
#
As a result of a mar!eting study, the president believes that sales in the <est
*ivision could be increased by 3&C if monthly advertising in that division ere
increased by +%,,\$\$\$. )ompute the Incremental net operating income.
(egative amount should be indicated by a minus sign! &mit the "'"

Incremental net
operating income
+

(b
#
<ould you recommend the increased advertising=
(Click to select)YesNo
6.;
)ompanhia >radesco, (.A., of >raAil, an industrial supply store chain, has to
divisions. The company's contribution format income statement segmented by
divisions for last year is given belo 0the currency in >raAil is the real, denoted
here by :2'
*ivision
Total )ompany Plastics Dlass
(ales :.,,\$%,&\$\$ :3,--#,\$\$\$ :3,,\$;,&\$\$
/ariable eJpenses 3,".;,..& -,-,\$;\$ "",,%-&
)ontribution margin 3,"&#,%&; 3,\$.#,-&\$ "%-,.\$;
Traceable fiJed
eJpenses'

Advertising &\$",#\$\$ %-&,\$\$\$ .33,#\$\$
*epreciation %..,\$\$\$ 33#,\$\$\$ 33,,\$\$\$
Administration ;3-,#&; %3\$,\$\$\$ %\$-,#&;
Total 3,%&\$,&&; &%;,\$\$\$ &.&,&&;
*ivision segment
margin
,\$",&\$\$ :;3;,-&\$ :-%,&;\$
)ommon fiJed
eJpenses
.#&,\$\$\$
Iet operating income :3%3,&\$\$
Top management doesn't understand hy the Dlass *ivision has such a lo
segment margin hen its sales are only %, less than sales in the Plastics
*ivision. Accordingly, management has directed that the Dlass *ivision be
further segmented into product lines. The folloing information is available on the
product lines in the Dlass *ivision'
Dlass *ivision Product 5ines
Glat Dlass Auto Dlass (pecialty
Dlass
(ales :;--,\$\$\$ &--,&\$\$ .\$&,\$\$\$
Traceable fiJed
eJpenses'

Advertising :#\$,.\$\$ :33%,3\$\$ :33-,;\$\$
*epreciation :%,,.\$\$ :,&,%\$\$ :..,,\$\$
Administration :.\$,3\$\$ :.;,&\$\$ :;3,"\$\$
/ariable eJpenses as
a percentage of sales
&&C ;3C ,%C
Analysis shos that :3\$.,;&; of the Dlass *ivision's administration eJpenses
are common to the product lines.
Requirement 1:
Prepare a contribution format segmented income statement for the Dlass
*ivision ith segments defined as product lines. (egative amounts other
than the e0\$enses should be indicated by a minus sign! &mit the "R"
Product 5ine
Dlass
*ivision
Glat Dlass Auto Dlass (pecialty
Dlass
(ales : : : :
/ariable eJpenses
)ontribution
margin

Traceable fiJed
eJpenses'

*epreciation
Total
Product line
segment margin
: : :
)ommon fiJed
eJpenses

*ivisional segment
margin
:

Requirement (:
Management is surprised by (pecialty Dlass's poor shoing and ould li!e to
have the product line segmented by mar!et. The folloing information is
available about the to mar!ets in hich (pecialty Dlass is sold'
(pecialty Dlass Mar!ets

*omestic Goreign
(ales :%\$;,\$\$\$ :3\$%,\$\$\$
Traceable fiJed
eJpenses'

/ariable eJpenses as
a percentage of sales
;.C "\$C
All of (pecialty Dlass's depreciation and administration eJpenses are common to
the mar!ets in hich the product is sold. )alculate the folloing for the (pecialty
Dlass product line ith segments defined as mar!ets. (egative amounts
should be indicated by a minus sign! &mit the "R" sign in your
res\$onse!#
*omestic mar!et
segment margin
:
Goreign mar!et
segment margin
:
Product line segment
margin
:
Requirement ):
(a
#
:efer to the statement prepared in 0:e4uirement 32 above. The sales manager
ants to run a special promotional campaign on one of the product lines over
the neJt month. A mar!et study indicates that such a campaign ould increase
sales of Glat Dlass by :3--,\$\$\$ or sales of Auto Dlass by :3;",\$\$\$. The
campaign ould cost :.\$,\$\$\$. )alculate the increased net operating income.