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Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures.
Total sales was budgeted at $40,000 and nail technician wages (a variable costs based on the number of manicures) was budgeted at $20,000.
Actual manicures in March totaled 2,200.
Assuming no other expenses, Fancy Nails' flexible budget will show:
 
Sales of $44,000.
Net Operating Income of $19,500. 

40,000 / 2,000) x 2,200 = 44,000.
44,000 - 22,000 - 2,500 = 19,500.
   
Fancy Nails' budget revenue is $20 per manicure.
The budget for June was based on 2,400 manicures.
During June, the actual revenue was $49,750 for 2,500 manicures.
The revenue variance for June is
 
$250 Unfavorable

20 x 2,500 - 49,750 = 250 U
   
Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units.
If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?
 
$11,600 favorable

16,000 / 4,000 x 2,900 = 11,600.
since the flexible budget expense is less than planning budget expense, the variance is favorable
   
Advertising department expenses of $71,000 and purchasing department expenses of $78,900 of Cozy Bookstore
are allocated to operating departments on the basis of dollar sales and purchase orders, respectively.
Information about the allocation bases for the three operating departments follows.
 

Department	Sales	Purchase Orders
Books	$201,600	1,225
Magazines	92,400	725
Newspapers	126,000	550
Total	$420,000	2,500

 
Complete the following table by allocating the expenses of the two service departments (advertising and purchasing)
to the three operating departments.
 

   
Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging.
In a recent month, the four departments incurred three shared indirect expenses.
The amounts of these indirect expenses and the bases used to allocate them follow.
 

Indirect Expense	Cost	Allocation Base
Supervision	$83,700	Number of employees
Utilities	62,000	Square feet occupied
Insurance	28,500	Value of assets in use
Total	$174,200

 
Departmental data for the company’s recent reporting period follow.
 

Department	Employees	Square Feet	Asset Values
Materials	24	28,750	$7,200
Personnel	12	11,500	2,880
Manufacturing	48	57,500	37,440
Packaging	36	17,250	24,480
Total	120	115,000	$72,000

 
1. Use this information to allocate each of the three indirect expenses across the four departments.
 

 
2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.
 

 
You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers.
This growing chain is trying to decide which outlet of two alternatives to open.
The first location (A) requires a $500,000 investment and is expected to yield annual net income of $75,000.
The second location (B) requires a $200,000 investment and is expected to yield annual net income of $44,000.
Compute the return on investment for each Fast & Great Burgers alternative.
 

 
Using return on investment as your only criterion, recommend which of the locations to open
 
Location A
Location B
   
Megamart, a retailer of consumer goods, provides the following information on two of its departments
(each considered an investment center).
 

Investment Center	Sales	Income	Average Invested Assets
Electronics	$40,800,000	$3,060,000	$17,000,000
Sporting goods	17,680,000	2,210,000	13,000,000

 
Compute return on investment for each department.
Using return on investment, which department is most efficient at using assets to generate returns for the company?
Assume a target income level of 11% of average invested assets.
Compute residual income for each department. Which department generated the most residual income for the company?
Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment.
Should the new investment opportunity be accepted?
 
1. Compute return on investment for each department. Using return on investment,
which department is most efficient at using assets to generate returns for the company?
 

 
2. Assume a target income level of 11% of average invested assets. Compute residual income for each department.
Which department generated the most residual income for the company?
 

 
3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment.
Should the new investment opportunity be accepted?
 

 
Oakwood Company produces maple bookcases to customer order.
The following information is available for the production of the bookcases.
 

Process time	10.0 days
Inspection time	1.3 days
Move time	3.1 days
Wait time	9.0 days

 
Required:
1. Compute the company’s manufacturing cycle time.
2. Compute the company’s manufacturing cycle efficiency.
3. Management believes it can reduce move time by 1.10 days and wait time by 2.50 days by adopting lean manufacturing techniques.
 Compute the company’s manufacturing cycle efficiency assuming the company’s predictions are correct.
 
1. Compute the company’s manufacturing cycle time.
 

 
2. Compute the company’s manufacturing cycle efficiency.
 

 
3. Management believes it can reduce move time by 1.10 days and wait time by 2.50 days by adopting lean manufacturing techniques.
Compute the company’s manufacturing cycle efficiency assuming the company’s predictions are correct.
 

   
Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?
 
$11,600 and favorable

16,000 / 4,000 x 2,900 = 11,600
   
Revenue on the planning budget is expected to be $380,000 for 1,900 client visits.
The revenue on the flexible budget is $410,000, showing that there were actually ______ client visits.
 
2,050

(410,000 / 200) / (380,000 / 1,900) = 2,050
   
Fancy Nails has an estimated cost for supplies of $0.75 per manicure. June's budget was based on 2,400 manicures and a total cost for supplies of $1,800. June's actual activity was 2,500 manicures. Total cost of supplies in June was $2,000. Calculate the spending variance for June.
 
$125 Unfavorable

2,000 - 0.75 x 2,500 = 125
   
Marks Corporation has two operating departments, Drilling and Grinding, and an office.
The three categories of office expenses are allocated to the two departments using different allocation bases.
The following information is available for the current period:
 

Office Expenses	Total	Allocation Basis
Salaries	$30,000	Number of employees
Depreciation	20,000	Cost of goods sold
Advertising	40,000	Net sales

 

Item	Drilling	Grinding	Total
Number of employees	1,000	1,500	2,500
Net sales	$325,000	$475,000	$800,000
Cost of goods sold	$75,000	$125,000	$200,000

 
The amount of salaries that should be allocated to Drilling for the current period is:
 
$30,000
$18,000
$15,000
$10,000
$12,000
   
If the planned budget revenue for 5,000 units is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units?
 
$108,000.

120,000 / 5,000 = x 4,500= 108,000
   
Brownley Company has two service departments and two operating (production) departments.
The Payroll Department services all three of the other departments in proportion to the number of employees in each.
The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each.
Listed below are the operating data for the current period:
 

	Service Depts.		Production Depts.
	Payroll	Maintenance	Cutting	Assembly
Direct costs	$20,400	$25,500	$76,500	$105,400
No. of personnel		15	15	45
Sq. ft. of space			10,000	15,000

 
The total cost of operating the Maintenance Department for the current period is:
 
$14,280
$15,912
$25,500
$29,580
$22,412
   
Fancy Nails cost formula for electricity is $40 per operating day plus $0.15 per client served.
Calculate Fancy Nails' electricity budget in a month when the business is going to be open for 24 days and they expect to serve a total of 2,100 clients.
 
$1,275.

40 x 24 + (0.15 x 2,100) = 1,275
   
The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results last year:
 

Sales (150,000 pounds of chocolate)		$60,000
Variable expenses		37,500
Contribution margin		22,500
Fixed expenses		12,000
Profit		$10,500

 
Assume that the Dark Chocolate Division is currently operating at its capacity of 200,000 pounds of chocolate.
Also assume again that the Peanut Butter Division wants to purchase an additional 20,000 pounds of chocolate from Dark Chocolate.
Under these conditions, what amount per pound of chocolate would Dark Chocolate have to charge Peanut Butter in order to maintain its current profit?
 
$0.40 per pound
$0.08 per pound
$0.15 per pound
$0.25 per pound
$0.30 per pound
   
Calculating return on investment for an investment center is defined by the following formula:
Contribution margin/Ending assets.
Gross profit/Ending assets.
Net income/Ending assets.
Income/Average invested assets…
Contribution margin/Average invested assets.
   
In regard to joint cost allocation, the “split-off point” is:
 
A physical basis method to allocate costs based on ratio of some physical characteristic.
The difference between the actual and market value of joint costs.
The point at which some products are sold and some remain in inventory.
The point at which separate products can be identified…
Not acceptable when using the value basis for allocating joint costs.
   
The amount by which a department’s sales exceed its direct expenses is:
 
Net sales.
Gross profit.
Departmental profit.
Contribution margin.
Departmental contribution to overhead…
   
Two investment centers at Marshman Corporation have the following current-year income and asset data:
 

	Investment Center A			Investment Center B
Investment center income		$415,000			$525,000
Investment center average invested assets		$2,400,000			$1,950,000

The return on investment (ROI) for Investment Center A is:
 
578.3%
24.1%
17.3%
39.2%
19.1%
   
Within an organizational structure, the person most likely to be evaluated in terms of controllable costs would be:
 
A payroll clerk.
A cost center manager
A production line worker.
A maintenance worker.
A sales representative.
   
Part 7B costs the Midwest Division of Frackle Corporation $30 to make, of which $21 is variable.
Midwest Division sells Part 7B to other companies for $47.
The Northern Division of Frackle Corporation can use Part 7B in one of its products.
The Midwest Division has enough idle capacity to produce all of the units of Part 7B that the Northern Division would require.
What is the lowest transfer price at which the Midwest Division should be willing to sell Part 7B to the Northern Division?
 
$30
$21
$47
$17
$20
   
Marks Corporation has two operating departments, Drilling and Grinding, and an office.
The three categories of office expenses are allocated to the two departments using different allocation bases.
The following information is available for the current period:
 

Office Expenses	Total				Allocation Basis
Salaries		$30,000			Number of employees
Depreciation		20,000			Cost of goods sold
Advertising		40,000			Net sales

 

Item	Drilling	Grinding	Total
Number of employees</td?	1,000	1,500	2,500
Net sales	$325,000	$475,000	$800,000
Cost of goods sold	$75,000	$125,000	$200,000

 
The amount of depreciation that should be allocated to Grinding for the current period is:
 
$20,000
$25,000
$7,500
$12,500
$40,000

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