The following is a partially completed lower section of a departmental expense allocation spreadsheet for Bookworm Bookstore

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Bookworm Bookstore.

E21-5 Service department expenses allocated to operating departments

E21-5 The following is a partially completed lower section of a departmental expense allocation spreadsheet for Bookworm Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five departments. Complete the spreadsheet by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

Advertising and purchasing department expenses 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 . . . . . . . . . . . . . . .        $448,000                     424

Magazines . . . . . . . . . . . .        144,000                       312

Newspapers . . . . . . . . . .         208,000                       264

Total . . . . . . . . . . . . . . . .        $800,000                     1,000

Check Total expenses allocated to Books Dept., $450,040

TUTORIAL PREVIEW : E21-5 The following is a partially completed lower section of a departmental expense allocation spreadsheet for Bookworm Bookstore.

BOOKWORM BOOKSTORE Departmental Expense Allocation Spreadsheet For Period Ended _______ ____Allocation of Expenses to Departments___
	Allocation Base	Expense Account Balance	Advertising Dept.	Purchasing Dept.	Books Dept.	Magazines Dept.	News-papers Dept.
Total dept. exp.		$   654,000.00	$  22,000.00	$  30,000.00	$ 425,000.00	$86,000.00	$   91,000.00
Service dept. expenses
Advertising Dept.	Sales		$ -22,000.00		$   12,320.00	$  3,960.00	$     5,720.00

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E21-3 Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its electric

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its electric guitar department since it has a net loss.

 

E21-3 Departmental contribution report

E21-3 Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its electric guitar department since it has a net loss. The company classifies advertising, rent, and utilities expenses as indirect. (1) Prepare a departmental contribution report that shows each department’s contribution to overhead. (2) Based on contribution to overhead, should the electric guitar department be eliminated?

 

BEST GUITAR

Departmental Income Statements

For Year Ended December 31, 2011

Acoustic          Electric

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        $101,500         $85,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . .               45,675                         46,750

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .                         55,825                         38,250

Operating expenses

Advertising expense . . . . . . . . . . . . . . . . . .    5,075               4,250

Depreciation expense‐equipment . . . . . . .       10,150                         8,500

Salaries expense . . . . . . . . . . . . . . . . . . . . .    20,300                         17,000

Supplies expense . . . . . . . . . . . . . . . . . . . .     2,030               1,700

Rent expense . . . . . . . . . . . . . . . . . . . . . . .     7,105               5,950

Utilities expense . . . . . . . . . . . . . . . . . . . . .    3,045               2,550

Total operating expenses . . . . . . . . . . . . . . . .                         47,705                         39,950

Net income (loss) . . . . . . . . . . . . . . . . . . .                   $ 8,120                        ($1,700)

 

TUTORIAL PREVIEW- E21-3 Below are departmental

BEST GUITAR

Departmental Contribution Statements

For Year Ended December 31, 2011

	Acoustic	Electric
	Dept.	Dept.	Combined
Sales	$ 101,500	$85,000	$ 186,500
Cost of goods sold	45,675	46,750	92,425
Gross profit	55,825	38,250	94,075

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P21-1A City Bank has several departments that occupy both floors

P21-1A City Bank has several departments that occupy both floors of a two-story building. The depart mental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for the current period follow.

PROBLEM SET A P21-1A Allocation of building occupancy costs to departments

Depreciation—Building . . . . . . . . . . . . .         $18,000

Interest—Building mortgage . . . . . . . . .                      27,000

Taxes—Building and land . . . . . . . . . . .                     8,000

Gas (heating) expense . . . . . . . . . . . . . .                      2,500

Lighting expense . . . . . . . . . . . . . . . . . .                      3,000

Maintenance expense . . . . . . . . . . . . . .                      5,500

Total occupancy cost . . . . . . . . . . . . . .                       $64,000

The building has 4,000 square feet on each floor. In prior periods, the accounting manager merely divided the $64,000 occupancy cost by 8,000 square feet to find an average cost of $8 per square foot and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupied. Laura Diaz manages a first-floor department that occupies 1,000 square feet, and Lauren Wright manages a second-floor department that occupies 1,800 square feet of floor space. In discussing the departmental reports, the second-floor manager questions whether using the same rate per square foot for all departments makes sense because the first-floor space is more valuable. This manager also references a recent real estate study of average local rental costs for similar space that shows first-floor space worth $30 per square foot and second-floor space worth $20 per square foot (excluding costs for heating, lighting, and maintenance).

Required

1. Allocate occupancy costs to the Diaz and Wright departments using the current allocation method.

2. Allocate the depreciation, interest, and taxes occupancy costs to the Diaz and Wright departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance

costs to the Diaz and Wright departments in proportion to the square feet occupied (ignoring floor space market values).

Analysis Component

3. Which allocation method would you prefer if you were a manager of a second-floor department?

Explain.

Check (1) Total allocated to Diaz and Wright, $22,400 (2) Total occupancy cost to Diaz, $9,330

SOLUTION PREVIEW

1,000	$           8.00	$         8,000
1,800	$           8.00	$       14,400

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E21-1 Won Han Co. has four departments: materials, personnel, manufacturing, and packaging.

E21-1 Won Han 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.

E21-1 Departmental expense Allocations

Indirect Expense                      Cost                 Allocation Base

Supervision . . . . . . . . . . . . . . $ 75,000          Number of employees

Utilities . . . . . . . . . . . . . . . . . 60,000                         Square feet occupied

Insurance . . . . . . . . . . . . . . . .             16,500                         Value of assets in use

Total . . . . . . . . . . . . . . . . . . . .            $151,500

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

Department                              Employees       Square Feet      Asset Values

Materials . . . . . . . . . . . .          18                    27,000                         $ 6,000

Personnel . . . . . . . . . . . .         6                      4,500               1,200

Manufacturing . . . . . . . .         66                    45,000                         37,800

Packaging . . . . . . . . . . . .        30                    13,500                         15,000

Total . . . . . . . . . . . . . . .          120                  90,000                         $60,000

(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.

Check (2) Total of $30,900 assigned to Materials Dept.

SOLUTION PREVIEW

1.         Allocation of Indirect Expenses to Four Operating Departments

Supervision expenses

Department	Employees	% of Total		Cost
Materials	18	15%		$11,250
Personnel	6	5	3,750
Manufacturing	66	55	41,250
Packaging	30	25	18,750

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Cyrus Brown Manufacturing (CBM).To avoid any uncertainty regarding his business' financing needs at the time when such needs may arise, Cyrus Brown wants

Cyrus Brown Manufacturing (CBM).To avoid any uncertainty regarding his business' financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture: Cyrus Brown Manufacturing (CBM).

 

Please read the relevant parts of your textbook, which refer to cash flow and financial planning.

 

To avoid any uncertainty regarding his business' financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture: Cyrus Brown Manufacturing (CBM). He has estimated the following sales forecast for CBM over the next 9 months:

 

March	$100,000
April	$275,000
May	$320,000
June	$450,000
July	$700,000
August	$700,000
September	$825,000
October	$500,000
November	$115,000

 

He has also gathered the following collection estimates regarding the forecast sales:

Payment collection within the month of sale = 25%

Payment collection the month following sales = 55%

Payment collection the second month following sales = 20%

 

Payments for direct manufacturing costs like raw materials and labor are made during the month that follows the one in which such costs have been incurred. These costs are estimated as follows:

March	$187,500
April	$206,250
May	$375,000
June	$337,500
July	$431,250
August	$640,000
September	$395,000
October	$425,000

Additional financial information is as follows:

 

Administrative salaries will approximately amount to $35,000 a month.

Lease payments around $15,000 a month.

Depreciation charges, $15,000 a month.

A one-time new plant investment in the amount of $95,000 is expected to be incurred and paid in June.

Income tax payments estimated to be around $55,000 will be due in both June and September.

And finally, miscellaneous costs are estimated to be around $10,000 a month.

Cash on hand on March 1 will be around $50,000, and a minimum cash balance of $50,000 shall be on hand at all times.

 

SOLUTION PREVIEW

a.
Cash Budget
Particulars	March	April	May	June	July	August	September	October	November
Receipts:
25% of current month's sales	25000	68750	80000	112500	175000	175000	206250	125000	28750
55% of previous month's sales		55000	151250	176000	247500	385000	385000	453750	275000
20% of 2 month's before sales			20000	55000	64000	90000	140000	140000	165000

 

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