Inter-department Services Step Method :

O'brain's Department Store Allocates the Cost of personnel and Payroll to three retail Sales Department Housewares , Clothing and Furniture . In addition to providing services to the operating department. Personnel and Payroll provide services to each other. O'brain's Allocate the personnel department cost on the basis of the number of employees and payroll department costs on the basis Of gross Payroll

Cost and Allocation Information Is as Follows :
Personnel Payroll Housewares Clothing furniture

Direct Department Cost 6900 3200 12200 20000 15750
Number Of employees 5 3 8 15 4
Gross Payroll 6000 11200 17400 8100

Required :

a. Determine the Percentage of total Personnel Department Services that Was provided to the Payroll Department ?

B. Determine the Percentage of total services payroll Department provided to personnel Department?

C. Prepare a schedule Showing Personnel Department and Payroll Department cost allocation to the operating department Assuming O'brain's Uses the Step Method ( Round Calculations to the nearest Dollar).

Transfer Pricing
MuniCorp is a decentralized company that rewards division managers based on ROI. The City Division produces a component that is used by the County Division. City¡¦s unit cost of manufacturing 5,000 components (capacity) is:
Variable costs $13
Fixed overhead $10
Total costs $23
City can sell 4,000 units on the open market for $30 by incurring selling costs of $2
per unit.
An outside supplier has offered County 5,000 units of this same component for $29. Orders of less than 5,000 units would cost the County Division $31 each. County needs the 5,000 components to make finished goods, which provide a total contribution of $245,000 excluding the cost of the component. The County Division¡¦s manager has approached the City Division manager with an offer to purchase the entire 5,000 units from the City Division for a total cost of $130,000 ($26 per unit). If this internal transaction is completed, the City Division would not incur the $2 unit selling costs.

Analyze the effect of this offer considering the following:
a. Is the City Division better off by accepting the offer to sell 5,000 units internally
for $26 each?
b. How much is the corporation as a whole better or worse off if the transaction is
completed internally
as opposed to each division dealing externally? Justify your answer.
c. What is the highest price the County Division would consider paying the City
Division for the component?
d. How does the analysis change if City can sell 5,000 units on the open market for $30 with the $2 selling cost?

Part 3

Determine Unit Cost , Variance analysis and Interpretation :

Big Dog company , A manufacturer of dog food , produces its product in 1000-bag batches. The standard cost of each batch consist of 8000 pounds of direct materials at 0.30$ Per pound. 48 Direct labor Hours at 8>5 Per Hour and variable overhead cost (Based on machine Hours) at the rate of 10 per Hour with 16 machine Hours per batch.
The following variable costs were incurred for the last 1000-bag batch

Direct materials 8300 Pounds Costing 2378 were purchased and used
Direct labor 45 Hours costing 450$
Variable overhead 225
Machine hours used 18 hours

Required :

a. determine the actual and standard variable cost per bag of dog food produced , separated into direct material , Direct labor and Variable overhead.

b. for the last 1000 bag batch determine the standard cost variance for direct material , direct labor and variable over head

c. explain the possible causes for each of the variances determined in requirement B
Part 4

Cost of Goods Manufactured
Presented below is selected information from the Greenville Company¡¦s current period accounting
records (in $000s):
Sales $10,000
Raw Materials Used 2,500
Direct Labor Costs 1,000
Period Costs (Selling and Administrative) 2,500
Beginning Raw Material Inventory 300
Ending Raw Material Inventory 1,000
Net Income 200
Beginning Work-in-Process Inventory 0
Ending Work-in-Process Inventory 300
Beginning Finished Goods Inventory 700
Ending Finished Goods Inventory 400
* NOTE: All raw materials used were direct materials.

Determine the following (in dollars):
a. Raw Material Purchases
b. Gross Profit
c. Cost of Goods Manufactured
d. Manufacturing Overhead

Part 5
Cash Budgeting
Landis Company has the following sales forecasts for the selected three-month period in the current year:
Month Sales
April $12,000
May 7,000
June 8,000

Seventy percent of sales are collected in the month of the sale, and the remaining balance is collected in the following month.
Accounts Receivable balance (April 1) $10,000
Cash balance (April 1) 5,000
Minimum cash balance is $5,000. Cash can be borrowed in $1,000 increments from the local bank (assume no interest charges). Calculate the expected cash balance at the end of April and May, assuming that cash is received only from customers and that $16,000 is paid out during April and 14,000 is paid out during May.

Part 6

Negotiating a transfer price with excess capacity

The weaving division of carolina txtile Inc. produces cloth that is sold to the company's dyeing division and to outside customers. Operating data for the weaving division for 2009 were as follows :

Sales to dying division to outside costumer
450,000 Yards X 5.0 $ 2,250,000
300,000 Yards X 6.0$ 1,800,000
Variable Expense 2.0$ (900,000) (600,00)
--------------- --------------
contribution margin 1,350,000 1,200,000
Fixed Expenses * (750,000) (500,000)

Net income 600,000 700,000

„Ä allocated on basis of unit of sales

the Dyeing division has just received an offer from an outside supplier to supply cloth at 3>50 per Yard , the weaving division manager is not willing to meet the 3>5$ price , she argues that it coasts her 3.67$ per yard to produce and sell the dyeing division , so she would show no profit on the dying division sales , sales to outside customers are at most 300,000 Yards.

Required :

a> Verify Weaving division 3,67 $ Cost Figure
B. should the weaving division meet the outside price 3.50 ? Explain
c> could the weaving division meet the 3>3 price and still show a profit >? Show in calculations !

Part 7

Use the following information to answer questions 1 and 2.

ShoppingKart, Inc. is a supermarket having three operating departments. An income statement for the most recent month of operations appears below:

General Meat Produce Total

Sales $50,000 $40,000 $10,000 $100,000
Variable Costs 30,000 16,000 5,000 51,000
Contribution Margin 20,000 24,000 5,000 49,000
Fixed Costs
Direct, avoidable (5,000) (4,000) (3,500) (12,500)
Common, Allocated based
on sales dollars (10,000) (8,000) (2,000) (20,000)
Profit (Loss) $ 5,000 $12,000 ($ 500) $16,500

1. If ShoppingKart, Inc. were to drop the produce line and make no other changes to its operations, income for the month would be:

a. $12,000 b. $15,000 c. $16,000 d. $17,000

1. The space currently being used by the produce department could be converted to a deli department. If there were done, sales of the deli are expected to be $20,000 with variable costs of $8,000 and avoidable direct fixed costs of $3,000. Assuming no effects on the general grocery and meat departments, income for the month would be:

a. $23,500 b. $24,000 c. $24,500 d. some other amount

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