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**Noreen, E., Brewer, P., & Garrison, R. (2016). Managerial accounting for managers. (4th ed.). McGraw-Hill  ISBN:  9781308886718

 Question 1

Villeda Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.
 

Activity Cost Pools

Activity Rate

Setting up batches

$34.47

per batch

Processing customer orders

$66.77

per customer order

Assembling products

$2.66

per assembly hour

Data concerning two products appear below:
 

Product G32H

Product U15Z

Number of batches

79

48

Number of customer orders

36

31

Number of assembly hours

487

417

How much overhead cost would be assigned to each of the two products using the company’s activity-based costing system?

Please submit your answers in a table format.

 Question 2 

Kerbow Corporation uses part B76 in one of its products. The company’s Accounting Department reports the following costs of producing the 12,000 units of the part that are needed every year.
 

Per Unit

Direct materials

$7.20

Direct labor

$7.10

Variable overhead

$3.50

Supervisor’s salary

$4.70

Depreciation of special equipment

$3.40

Allocated general overhead

$2.40

An outside supplier has offered to make the part and sell it to the company for $27.40 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $6,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part B76 could be used to make more of one of the company’s other products, generating an additional segment margin of $29,000 per year for that product.
Required:
a. Prepare a report that shows the effect on the company’s total net operating income of buying part B76 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?

 Question 3 

Allen Corporation’s required rate of return is 14%. The company is considering the purchase of a new machine that will save $10,000 per year in cash operating costs. The machine will cost $39,540 and will have an 8-year useful life with zero salvage value. Straight-line depreciation will be used.
Required:
Compute the machine’s internal rate of return. Would you recommend purchase of the machine? Explain.

Question 4 

Ameigh Tech is a for-profit vocational school. The school bases its budgets on two measures of activity (i.e., cost drivers), namely student and course. The school uses the following data in its budgeting:
 

Fixed element per   month

Variable element per student

Variable element per   course

Revenue

$0

$335

$0

Faculty wages

$0

$0

$2,600

Course supplies

$0

$54

$18

Administrative expenses

$38,600

$13

$30

In June, the school budgeted for 1,890 students and 146 courses. The actual activity for the month was 2,290 students and 151 courses.
Required:
Prepare a report showing the school’s activity variances for June. Label each variance as favorable (F) or unfavorable (U).

Please submit in a table format.

Question 5 

During the most recent month at Luinstra Corporation, queue time was 4.5 days, inspection time was 0.8 day, process time was 1.9 days, wait time was 5.1 days, and move time was 0.7 day.
Required:
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
Please write answers as simple mathematical statements.

Noreen, E., Brewer, P., & Garrison, R. (2016). Managerial accounting for managers. (4th ed.). McGraw-Hill  ISBN:  9781308886718

CASE 12–23 Balanced Scorecard [LO 12–4]

Haglund Department Store is located in the downtown area of a small city. While the store had been profitable for many years, it is facing increasing competition from large national chains that have set up stores on the outskirts of the city. Recently the downtown area has been undergoing revitalization, and the owners of Haglund Department Store are somewhat optimistic that profitability can be restored.

In an attempt to accelerate the return to profitability, management of Haglund Department Store is in the process of designing a balanced scorecard for the company. Management believes the company should focus on two key problems. First, customers are taking longer and longer to pay the bills they incur using the department store’s charge card, and the company has far more bad debts than are normal for the industry. If this problem were solved, the company would have more cash to make much needed renovations. Investigation has revealed that much of the problem with late payments and unpaid bills results from customers disputing incorrect charges on their bills. These incorrect charges usually occur because salesclerks incorrectly enter data on the charge account slip. Second, the company has been incurring large losses on unsold seasonal apparel. Such items are ordinarily resold at a loss to discount stores that specialize in such distress items.

The meeting in which the balanced scorecard approach was discussed was disorganized and ineffectively led—possibly because no one other than one of the vice presidents had read anything about how to build a balanced scorecard. Nevertheless, a number of potential performance measures were suggested by various managers. These potential performance measures are:

1. Percentage of charge account bills containing errors.
2. Percentage of salesclerks trained to correctly enter data on charge account slips.
3. Average age of accounts receivables.Page 557
4. Profit per employee.
5. Customer satisfaction with accuracy of charge account bills from monthly customer survey.
6. Total sales revenue.
7. Sales per employee.
8. Travel expenses for buyers for trips to fashion shows.
9. Unsold inventory at the end of the season as a percentage of total cost of sales.
10. Courtesy shown by junior staff members to senior staff members based on surveys of senior staff.
11. Percentage of suppliers making just-in-time deliveries.
12. Sales per square foot of floor space.
13. Written-off accounts receivable (bad debts) as a percentage of sales.
14. Quality of food in the staff cafeteria based on staff surveys.
15. Percentage of employees who have attended the city’s cultural diversity workshop.
16. Total profit.

Required:

1. As someone with more knowledge of the balanced scorecard than almost anyone else in the company, you have been asked to build an integrated balanced scorecard. In your scorecard, use only performance measures listed previously. You do not have to use all of the performance measures suggested by the managers, but you should build a balanced scorecard that reveals a strategy for dealing with the problems with accounts receivable and with unsold merchandise. Construct the balanced scorecard following the format used in Exhibit 12–5. Do not be concerned with whether a specific performance measure falls within the learning and growth, internal business process, customer, or financial perspective. However, use arrows to show the causal links between performance measures within your balanced scorecard and explain whether the performance measures should show increases or decreases.
2. Assume that the company adopts your balanced scorecard. After operating for a year, some performance measures show improvements, but not others. What should management do next?

a. Suppose that customers express greater satisfaction with the accuracy of their charge account bills but the performance measures for the average age of accounts receivable and for bad debts do not improve. Explain why this might happen.

b. Suppose that the performance measures for the average age of accounts receivable, bad debts, and unsold inventory improve, but total profits do not. Explain why this might happen. Assume in your answer that the explanation lies within the company.