PROBLEMSETC

PROBLEM211C
TheAfterMidnightDanceClubisdividedintotwoseparatesections,HipHopandSwing.Hip
Hopoccupiesthebasementofthebuildingandcaterstothe1821crowdwhileSwingisonthe
firstfloorcateringtothe21+crowd. HipHopoccupies8,500squarefeetoffloorspaceand
Swingoccupies11,000squarefeet.Thetypesandamountsofoccupancycostsrecordedinthis
accountforthecurrentperiodfollow:
DepreciationBuilding $8,000
InterestBuildingmortgage17,000
TaxesBuilding5,000
Utilitiesexpense
7,500
Repairsexpense
1,500
Total
$39,000
Forsimplicity,theaccountantmerelydividedthe$39,000occupancycostby19,500squarefeet
tofindanaveragecostof$2.00persquarefootandthenchargedeachdepartmentabuilding
occupancycostequaltothisratetimesthenumberofsquarefeetthatitoccupied.
ThemanagerofHipHophascomplainedthatitisnotfairtochargehissectionsthesamerate
becausethe1821crowdcanonlypurchasesoftdrinksandhedoesnothavethesamerevenue
generatingabilityasSwing. AfterdoingsomeresearchheconcludesthatHipHopgenerates
averagerevenueof$35persquarefootwhileSwinghasbeengeneratinganaverageof$80per
squarefoot.Hedoesagreethatutilityandrepaircostsshouldbeallocated basedonsquare
footagebutfeelsotheroccupancycostsshouldbeallocatedbasedonrevenuegeneratingability.
Required
1.AllocatealloccupancycoststoHipHopandSwingusingthecurrentallocationmethod.
2.Allocate the depreciation, interest, and taxes occupancy costs to HipHop and Swing in
proportiontotherelativerevenuegenerationofeachfloorspace.Allocatetheutilitiesandrepair
coststoHipHopandSwinginproportiontothesquarefeetoccupied(ignoringfloorspace
revenuegenerationandroundingallcostpersquarefoottothenearestcent).
AnalysisComponent
3.WhichallocationmethodwouldyoupreferifyouwerethemanageroftheHipHoparea?
Explain.
PROBLEM212C
ThelocalaccountingfirmofAbbott,Baker,andChoihashadmanyprofitableyearsproviding
financial planning and tax services to retirees. Recent developments in doityourself tax
softwarehavebeguntoerodebusinessandthefirmwantstotakeacloserlookatcosts.Asone
ofthefirmsnewhires,youhavebeenassignedtoprepareanactivitybasedcostanalysiswith

the following data. The focus of the analysis is to compare the cost of providing financial
planningversustaxpreparationservices.Youranalysisrevealsthefollowingaboutcostcenters
andtheirrespectivedrivers:
CostCenter
CostCostDriverDriverQuantity
Professionalsalaries
$375,000 Professionalhours
7,500
Internetaccess
20,000 Numberofcustomers
1,000
Occupancycosts
100,000 Squarefeet2,500
Thetwomainserviceactivitiesandtheirrelateddatafollow:
Service
HoursSquareFeet
Customers
FinancialPlanning
5,0001,000250
TaxPreparation2,5001,500750
Required
1.Computethecostpercostdriverforeachofthethreecostcenters.
2.Use the results from part 1 to allocate costs from each of the three cost centers to both
financialplanningandtaxpreparation. Computetotalcostandaveragecostpercustomerfor
bothfinancialplanningandtaxpreparation
AnalysisComponent
3.Withoutprovidingcomputations,wouldtheaveragecostoftaxpreparationbehigherorlower
ifallcentercostswereallocatedbasedonthenumberofcustomersalone?Explain.

PROBLEM213C
RegisCo.beganoperationsinJanuary2008withtwooperating(selling)departmentsandone
service(office)department.Itsdepartmentalincomestatementsfollow:
REGISCO.
DepartmentalIncomeStatements
ForYearEndedDecember31,2008
BackpacksTents
Combined
$246,000$154,000$400,000
144,20065,800210,000
101,80088,200190,000

Sales
Costofgoodssold
Grossprofit
Directexpenses
Salessalaries
Advertising
Storesuppliesused
DepreciationEquipment
Totaldirectexpenses
Allocatedexpenses
Rentexpense

21,00034,000 55,000
7,2004007,600
1,40013,00014,400
2,400

8003,200
$32,000$48,200$80,200
10,80010,80021,600

Utilitiesexpense
3,3003,6006,900
Shareofofficedepartmentexpenses
9,000

6,20015,200
Totalallocatedexpenses
$23,100$20,600$43,700
Totalexpenses
$55,100$68,800$123,900
Netincome
$46,700$19,400$66,100
RegisplanstoopenathirddepartmentinJanuary2009thatwillsellhikingboots.Management
predictsthatthenewdepartmentwillgenerate$130,000insaleswitha45%grossprofitmarginand
willrequirethefollowingdirectexpenses:salessalaries,$15,000;advertising,$5,000;storesupplies,
$1800;andequipmentdepreciation,$700.Thecompanycurrentlyrentsspaceinabuilding.Itwillfit
the new department into the current space by taking some square footage from the other two
departments. When opened, the new hiking boots department will fill onefourth of the space
presentlyusedbythebackpackdepartmentandonehalfusedbythetentdepartment.Management
doesnotpredictanyincreaseinutilitiescosts,whichareallocatedtothedepartmentsinproportionto
occupiedspace(orrentexpense).Thecompanyallocatesofficedepartmentexpensestotheoperating
departmentsinproportiontotheirsales.Itexpectsthehikingbootsdepartmenttoincreasetotaloffice
departmentexpensesby$10,000.Sincethehikingbootdepartmentwillbringnewcustomersintothe
store,managementexpectssalesinboththebackpackandtentdepartmentstoincreaseby10%.No
changesforthosedepartmentsgrossprofitpercentsortheirdirectexpensesareexpected,exceptfor
storesuppliesused,whichwillincreaseinproportiontosales.
Required
Preparedepartmentalincomestatementsthatshowthecompanyspredictedresultsofoperations
forcalendaryear2009forthethreeoperating(selling)departmentsandtheircombinedtotals.
(Roundpercentstothenearestonetenthanddollaramountstothenearestwholedollar.)

PROBLEM214C
DavidMona,theplantmanagerofWoodchuckSkiesVermontplant,isresponsibleforallofthat
plantscostsotherthanhisownsalary.Theplanthastwooperatingdepartmentsandoneservice
department.Theskiesandpolesoperatingdepartmentsmanufacturedifferentproductsandhave
their own managers. The office department, which Mona also manages, provides services
equallytothetwooperatingdepartments.Abudgetispreparedforeachoperatingdepartment
and the office department. The companys responsibility accounting system must assemble
information to present budgeted and actual costs in performance reports for each operating
departmentmanagerandtheplantmanager.Eachperformancereportincludesonlythosecosts
thataparticularoperatingdepartmentmanagercancontrol:rawmaterials,wages,suppliesused,
andequipment depreciation. Theplantmanagerisresponsible forthe department managers
salaries,utilities,buildingrent,officesalariesotherthanhisown,andotherofficecostsplusall
costscontrolledbythetwooperatingdepartmentmanagers.Theannualdepartmentalbudgets
andactualcostsforthetwooperatingdepartmentsfollow:
Budget
SkiesPoles CombinedSkies

Actual
Poles Combined

Rawmaterials
$88,000 $76,000 $164,000 $85,600 $77,100 $162,700
Employeewages
110,000 175,000 285,000 107,700 169,000 276,700
Dept.managersalary 44,000 38,000 82,000 44,000 39,500 83,500
Suppliesused
28,000 55,000 83,000 30,200 54,000 84,200
DepreciationEquip. 40,000 28,000 68,000 40,000 28,000 68,000
Utilities
2,700 1,900
4,600
2,740 1,880
4,620
Buildingrent
6,000 9,000 15,000
6,000 9,000 15,000
Officedept.costs
45,670

33,010

78,680

46,730

35,200

81,930
Totals
$364,370$415,910

$780,280

$362,970$413,680

$776,650
Theofficedepartmentsannualbudgetanditsactualcostsfollow:
BudgetActual
Plantmanagersalary $70,000$75,000
Otherofficesalaries42,50041,800
Otherofficecosts 22,00021,000
Totals
$134,500

$137,800
Required
1.Prepareresponsibility accounting performance reports like thosein Exhibit 21.20that list
costscontrolledbythefollowing:
a. Manageroftheskidepartment.
b. Managerofthepoledepartment.
c. ManageroftheVermontplant.
Ineachreport,includethebudgetedandactualcostsandshowtheamountthateachactualcostis
overorunderthebudgetedamount.
AnalysisComponent
2.Didtheplantmanagerortheoperatingdepartmentmanagersbettermanagecosts?Explain.

PROBLEM215C
AdamsOrchardsproducedagoodcropofapplesthisyear.Afterpreparingthefollowingincome
statement,AdamsbelievesitshouldhavegivenitsNo.3applestocharityandsaveditsefforts.
ADAMSORCHARDS
IncomeStatement
ForYearEndedDecember31,2008
No.1 No.2 No.3Combined
Sales(bygrade)
No.1(100,000lbs.@$2.00/lb) $200,000
No.2(150,000lbs.@$1.50/lb) $225,000
No.3(120,000lbs.@$.50/lb)
$60,000

Totalsales
$485,000
Costs
Treepruning@$0.20/lb80,000120,00096,000296,000
Pickingandsorting@$0.15/lb25,00037,50030,00092,500
Deliverycosts@$0.05/lb5,0007,5006,00018,500
Totalcosts$110,000$165,000$132,000$407,000
Netincome(loss)$90,000$60,000$
(72,000)$78,000
InpreparingtheincomestatementAdamsallocatedjointcostsamongthegradesonaphysical
basisasanequalamountperpound.Adamsdeliverycostrecordsshowsthat$8,000ofthe
$18,500 relates to creating the No. 1 and No.2 apples and hauling them to the buyer. The
remaining$10,500ofdeliverycostsisforcratingtheNo.3applesandhaulingthemtothe
processingplantforapplesauce.

Required
1. Preparereportsshowingcostallocationsonasalesvaluebasistothethreegradesof
apples.Separatethedeliverycostsintotheamountsdirectlyidentifiablewitheachgrade.
Thenallocateanyshareddeliverycostsonthebasisoftherelativesalesvaluetoeach
grade.
2. Usingyouranswersfrompart(1),prepareanincomestatement usingthejointcosts
allocatedonasalesvaluebasis.
AnalysisComponent
3.Doyouthinkdeliverycostsfitthedefinitionofajointcost?Explain.