1. Using the data from the Koko Company, determine the divisional income from operations for the A and B regions.
|
|
A Region
|
B Region
|
|
|
Sales
|
$600,000
|
$900,000
|
|
|
Cost of goods sold
|
200,000
|
350,000
|
|
|
Selling expenses
|
150,000
|
275,000
|
|
|
|
|
|
|
|
Service department expenses
|
|
|
|
|
Purchasing
|
|
|
$80,000
|
|
Payroll accounting
|
|
|
40,000
|
|
|
|
|
Allocate service department expenses proportional to the sales of each region.
2. The sales, income from operations, and invested assets for each division of Winston Company are as follows:
|
|
Sales
|
Income from
Operations
|
Invested
Assets
|
|
Division C
|
$5,000,000
|
$630,000
|
$3,900,000
|
|
Division D
|
6,800,000
|
760,000
|
4,300,000
|
|
Division E
|
3,750,000
|
750,000
|
7,250,000
|
|
|
|
|
Management has established a minimum rate of return for invested assets of 8%.
|
(a)
|
Determine the residual income for each division.
|
|
|
|
|
(b)
|
Based on residual income, which of the divisions is the most profitable?
|
3. Pnok Company has been purchasing a component, Part Q, for $18.90 a unit. Pnok is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q, determined by absorption costing methods, is estimated as follows:
|
Direct materials
|
$11.25
|
|
Direct labor
|
4.50
|
|
Variable factory overhead
|
1.12
|
|
Fixed factory overhead
|
3.15
|
|
Total
|
$20.02
|
|
|
Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.
4. FDE Manufacturing Company has a normal plant capacity of 37,500 units per month. Because of an extra-large quantity of inventory on hand, it expects to produce only 30,000 units in May. Monthly fixed costs and expenses are $112,500 ($3 per unit at normal plant capacity) and variable costs and expenses are $8.25 per unit. The present selling price is $13.50 per unit. The company has an opportunity to sell 7,500 additional units at $9.90 per unit to an exporter who plans to market the product under its own brand name in a foreign market. The additional business is therefore not expected to affect the regular selling price or quantity of sales of FDE Manufacturing Company.
Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.