1 For problem PE 23-1A, what is the amount of (a) price variance.docx

1: For problem PE 23-1A, what is the amount of (a) price
variance?
a. $-8,950 (unfavorable)
b. $7,950 (unfavorable)
c. $-7,950 (favorable)
d. $8,950 (favorable)
2: For problem PE 23-1A, what is the amount of (b) quantity
variance?
a. $14,700 (unfavorable)
c. $-14,700 (unfavorable)
d. $-15,700(unfavorable)
3: For problem PE 23-1A, what is the amount of (c) Cost
variances?
a. $6,750 (favorable)
d. $6,750 (unfavorable)
4: For problem PE 23-2A, what is the amount of (a) rate
variance?
c. $10,850 (favorable)
d. $-11,850 (favorable)
5: For problem PE 23-2A, what is the amount of (b) time
variance?
6: For problem PE 23-2A, what is the amount of (c) cost
variance?
a. $-8,000 (unfavorable)

c. $19,850 (unfavorable)
7: For problem PE 23-3A, what is the amount of the Variable
Factory Overhead Controllable Variable?
a. $400 (favorable)
b. $-300 (favorable)
c. $300 (unfavorable)
d. $-400 (favorable)
8: For problem PE 23-4A, what is the amount of the fixed
factory overhead volume variance?
a. $-650 (favorable)
b. $650 (unfavorable)
c. $550 (unfavorable)
d. $-550 (favorable)
9: For problem PE 23-5A, the correct journal entry to record the
standard direct materials used in production is:
a. (Debit) Work in Process $245,000; (Debit) Direct Materials
Quantity Variance $125; (Credit) Materials 259,700
b. (Debit) Work in Process $245,000; (Debit) Direct Materials
Quantity Variance $14,700; (Credit) Materials $259,700
c. (Debit) Work in Process $245,000; (Credit) Direct Materials
Quantity Variance $14,700; (Credit) Materials $259,700
d. (Debit) Work in Process $3,750; (Credit) Materials $125;
(Credit) Direct Materials Quantity Variance $3,625
10: For problem PE 24-4A, what is the amount of (a) profit
margin?
a. 7.5%
b. 20%
c. 9.5%
d. 22%
11: For problem PE 24-4A, what is the (b) the investment
turnover?
a. 2.7
b. 2.9
c. 3.2
d. 6.3

12: For problem PE 24-4A, what is the amount of (c) the rate of
return on investment?
a. 22%
b. 20%
c. 10%
d. 24%
13: For problem PE 24-5A, what is the amount of residual
income?
a. $20,000
b. $22,000
c. $24,000
d. $26,000
14: For problem PR24-1A, what is the total amount over
budget?
a. $160,575
b. $163,575
c. $164,575
d. $166,575
15: For problem PR24-1A, what is the total amount under
budget?
a. $30,250
b. $31,250
c. $33,250
d. $37,250
16: For problem PR24-2A, what is the total income from
operations for the East division?
a. $130,000
b. $129,600
c. $133,000
d. $133,600
operations for the West division?
a. $172,000
b. $177,300
c. $175,000
d. $177,200

operations for the Central division?
a. $394,000
b. $285,000
c. $390,000
d. $274,000
19: For problem PE 25-7A, what is the amount of the markup
percentage on product cost?
a. 150%
b. 100%
c. 85%
d. 125%
20: For problem PE25-8A, product A is most profitable.
a. True
b. False
21: For problem PE25-8A, the unit contribution margin per
production bottleneck hour for product A is:
a. $10
b. $9
c. $8
d. $7
22: For problem PE25-8A, the unit contribution margin per
production bottleneck hour for product B is:
a. $10
b. $9
c. $11
d. $5
23: The process of measuring and reporting operating data by
areas of responsibility is termed responsibility accounting.
a. True
b. False
24: A decentralized business organization is one in which all
major planning and operating decisions are made by top
management.
a. True
b. False

25: A centralized business organization is one in which all
major planning and operating decisions are made by top
management.
a. True
b. False
le*rni*gi Example
Ohjeefives Exercises
&8.,,3 EE24-1 r; ii0
&8J.3 EE24-1 r, iir)'
08J.3 EE24-2 t; ir(
Chapter 24 Performance Evaluation for Decentralized
Operations 1125
PE 24-1A Budgetary performance for cost center
Bahrke Company's costs were over budget by $300,000. The
company is divided into
West and East regions. The East Region's costs were under
budget by $60,000. Determine
the amount that the 'Sfest Region's costs were over or under
budget.
PE 24-1B Budgetary performance for cost center
Vonn Motion Company's costs were under budget by $175,000.
The company is divided
into North and South regions. The North Region's costs were
over budget by $60,000.
Determine the amount that the South Region's costs were over
or under budget.

The centralized employee travel department of Ohno Company
has expenses of $210,000.
The department has serviced a total of 3,000 travel reservations
for the period. The North-
east Division has made 1,250 reservations during the period,
and the Pacific Division has
made L,75O reselvations. How much should each division be
charged for travel services?
SB"r.3 EE24-2 u litt PE 24-28 Service department charges
The centralized computer technology department of Kearney
Company has expenses of
$170,000. The department has provided a total of 4,250 hours of
service for the period.
The Retail Division has used 2,250 hours of computer
technology service during the pe-
riod, and the Commercial Division has used 2,000 hours of
computer technology service.
How much should each division be charged for computer
technology department services?
s3.'.3 EE24-3 1t ii i, PE 24-3A lncome from operations for
profit center
Using the data for Ohno Company from Practice Exercise 24-2A
along with the data
provided below, determine the divisional income from
operations for the Northeast and
Pacific divisions.
NortheastDivision Pacifi<Division
Sales
Cost of goods sold
Selling expenses

s82s,000
422,O00
16s,000
s860,000
470,000
180,000
66",.3 EE24-3 , it) t PE 24-38 lncome from operations for profit
center
Using the data for Kearney Company from Practice Exercise 24-
28 along with the data
provided below, determine the divisional income from
operations for the Retail Division
and the Commercial Division.
RetailDivision CommercialDivision
Sales
Cost of goods sold
Selling expenses
51 ,3s0,000
720,000
224,000
s 1 ,380,000
799,000
250,000

1126 Chapter24
Learning ExamPle
O&jerrives Exercises
oBJ' 4 EE24-4 rt i i] t
OBJ. ?
r' a. k) 53,960
oBJ. 4 EE24-4 t) i i i ) PE 24-478 Profit margin, investment
turnover, and Rol
Roark company has income from operations of $40,000,
invested assets of $160,000'
anc
sales of $3iO,OOO. Use the DuPont formula to compute the rate
of return on investmer::
and show (a) the profit margin, (b) the investment turnover, and
(c) the rate of retur-
on investment.
OBJ.4 EE24-5 l.titil Residual income
fn--#orrtr-er Division of McPhie Company has income from
operations of $75,000 an:
assets of $500,000. The minimum accepiable rate of return on
assets is !1o/o' V/hat
is thc

residual income for the division?
OEJ.4 EE24-5 r'iii] PE 24-58 Residual income
The Commercial Division of Morse Company has income from
operations of $160'U':
and assets of $700,000. The minimum acceptable rate of return
on assets is 9%' what
::
the residual income for the division?
OB"!.5 EE24-6 tt iit':l
oBJ.5 EE24-6 t) i | | PE 24-6A Transfer pricing
The materials used by the vancouver Division of Roberts
company are currently Pu:-
chased from outside suppliers at #45 per unit' These same
materials are produced
t'1
Roberts, Tucson oivlslon. the Tucson Division can produce the
materials needed b1-
the
Vancouver Division at avariable cost of $30 per unii. The
division is currently producins
1.00,000 units and has capacity of 130,000 .r.titt. Th" two
divisions have recently negoi:-
ated a transf'er price of 6,aA pL. unit for 25,OOO units. By how
much will each division.:
income increase as a result of this transfer?

PE24-68 TransferPricing
The materials used by the Burlington Division of Wilson
Company are currently
purchasec
from outside supplieis at $100 p"er unit' These same materials
are produced by the
Racine
Division. The Racine Division ian produc. the materials needed
by the Burlington
Divt-
sion at avariable cost of $70 per unit. The division is currently
producing 169,000 urYL:
and has capacity of 200,000 .r.ritr. Th" tlvo divisions have
recently negotiated a transte:
pd." "f $Si
p.. unit for 40,000 units. By how much will each division's
income increa-
as a result of this transfer?
Performance Evaluation for Decentralized Operations
EX24-1 Budget Performance reports for cost centers
partially completed budget performance repofis for Gehring
company, a manufacturer o:
air conditioners, are provided on the following page'
PE24-4A Profit margin, investment turnover, and ROI

Celski Company has income from operations of $60,000,
invested assets of $250,000,
and
salesof$s00,000.UsetheDuPontformulatocomputetherateofreturn
oninvestmen:
and show (a) the profit margin, (b) the investment turnover, and
(c) the rate of return
on investment.
1134 Chapter 24 Performance Evaluation for Decentralized
Operations
GSJ.5
/ b. ss00,000
EX24-21 Decision on transfer pricing
Based on Goldman Motors' datain Exercise 24-20, assume that a
transfer price o;5r-rl
has been established and that 25,OOO units of materials are
transferred, with no reducr.n
in the Components Division's current sales'
a. How much would Goldmon Motors' total income from
operations increase?
tr. How much would the Truck Division's income from
c. How much would the Components Division's income from

j. * If the negotiated price approach is used, what would be the
range of acc<n
able transfer prices and whY?
*8J.2
w
M?Iilf,ec Company sells electronics over the Internet. The
International Divisior- :'
organizedas a cost center. The budget for the International
Division for the month en'!:
Budget performance report for a cost center
March 31,, 20'1.2, is as follows (in thousands):
Customer service salaries
lnsurance and ProPertY taxes
Distribution salaries
Marketing salaries
Engineer salaries
Warehouse wages
EquiPment dePreciation
Total
During March, the costs incurred in the International

08.!.3
/ 1. lncome from
operations, central
Division, S390,000
Customer service salaries
lnsurance and property taxes
Distribution salaries
Marketing salaries
Engineer salaries
Warehouse wages
Equipment dePreciation
Total
s 32s,500
68,250
519,250
612,125
498,12s
348,800
'109,400
?49t89
Division were as follows:

S 416,700
66,200
514,000
685,500
488,1 00
334,900
109,375
52,614,77s
5 720,000
860,000
1,560,000
4s6,150
s11,700
943,s50
1 12,000
38s,000
152,000
240,000
Revenues-East
Revenues-West
Revenues-Centra I

Operating Expenses-East
Operati ng Expenses-West
Operating Expenses-Central
Corporate Expenses-shareholder Relations
Corporate Expenses-Customer Support
Corporate ExPenses-Legal
General Corporate Offi cers' Salaries
*VDNT
-hstructions
fi) e..p"." a budget performance report for the director of the
International Division ::r
-/ the month of March.
2. For which costs might the director be expected to request
supplemental reports?
Profit center responsibility reporting
ioa-rrso-r, p.oducts Inc. has three regional divisions organized
as profit centers'
The ci-:e
executiveofficer(CEO)evaluatesdivisionalperformance,usinginco
mefromoperatic'=
as a percent of revenues. The following quarterly income and
expense accounts r<":
provided from the trialbalance as of December 31,2O2:

Chapter 24 Performance Evaluation for Decentralized
Operations I 135
The company operates three service departments: Shareholder
Relations, Customer
Support, and Legal. The Shareholder Relations Department
conducts a variety of services
for shareholders of the company. The Customer Support
Department is the company's
point of contact for new service, complaints, and requests for
repair. The department
believes that the number of customer contacts is an activity base
for this work. The Legal
Department provides legal services for division management.
The department believes
that the number of hours billed is an activity base for this work.
The following additional
information has been gathered:
q?
og"l.4
y' 2. Mutual Fund
Division, ROl, 18o/o
-L,h
i
'oatk'
/ lnstructions
Number of customer contacts

Number of hours billed
5,250 7,875
1,520 1,330
East
4,375
950
1.. Prepare quafierly income statements showing income from
operations for the three
r 6 divisions. Use three column headings: East, 'W'est, and
Central.
4+'// hraentify the most successful division according to the
profit rnargin.
r J.
-
Provide a recommendation to the CEO for a better method for
evaluating the
O$Y performance of the divisions. In your recommendation,
identify the ma;'or weaknessI of the present method.
PR 24-3A Divisional income statements and rate of return on
investment analysis
Edward Baird Company is a diversified investment company
with three operating divi-
sions organized as investment centers. Condensed data taken
frorn the records of the
three divisions for the year ended June 30, 2072, are as follows:
Mutual Fund
Division

Electronic lnvestment
Brokerage Banking
Division Division
53,4s0,000
2,415,OOO
5,750,000
The management of Edward Baird Company
planning a future expansion of operations.
lnstructions
1. Prepare condensed divisional income statements for tiie three
divisions, assuming that
there were no service department charges.
2. Using the DuPont formula for rate of return on investment,
compute the profit margin,
investment turnover, and rate of return on investment for each
division.
j.
-
If available funds permit the expansion of operations of only
one division,
which of the divisions would you recommend for expansion,
based on parts (1) and
(2)? Explain.
PR 24-4A Effect of proposals on divisional performance
A condensed income statement for the Golf Division of Rewind
Sports Inc. for the year

ended December 37, 2072, is as follows:
Fee revenue
Operating expenses
Invested assets
s2,800,000 s3,800,000
2,632,000 2,8s0,000
800,000 4,750,000
is evaluating each division as a basis for
OBJ.4
y' 1.ROt,'t5.60/o
ts Sales
Cost of goods sold
Gross profit
Operating expenses
lncome from operations
I nvested assets
52,400,000
1,663,000
5 737,000
42s,000
t 1?{99
52,000,000
Assume that the Golf Division received no charges from service
departments. The

president of Rewind Sports has indicated that the division's rate
of (eturn on a $2,000,000
Chapter 25 Differential Analysis, Product Pricing, and Activity-
Based Costing 1177
learning Example
O*j*cfives Exercises
*s.t" r EE 2s-4 , PE 25-4A Replace equipment
A machine with a book value of $250,000 has an estimated six-
year life. A proposal is
offered to sell the old machine for $216,000 and replace it with
a new machine at a
cost of fi282,O00. The new machine has a six-year life with no
residual value. The new
machine would reduce annual direct labor costs from $50,000 to
$40,000. Prepare a dif-
ferential analysis dated February 18,2012, on whether to
continue with the old machine
(Alternative 1) or replace the old machine (Alternative 2).
*E-1. 1 EE 2s-4 PE 25-4B Replace equipment
A machine with a book value of $75,000 has an estimated five-
year life. A proposal is
offered to sell the old machine for $64,000 and replace it with a
new machine at a cost
of $80,000. The new machine has a five-year life with no
residual value. The new ma-
chine would reduce annual direct labor costs from $9,500 to
$5,500. Prepare a differential
analysis dated April "J.1, 2072, on whether to continue with the
old machine (Alternative L)
or replace the old machine (Alternative 2).

csJ" t E= 2s-s PE 25-5A Process or sell
Product T is produced for $3.50 per pound. Product T can be
sold without additional
processing for $4.15 per pound, or processed further into
Product U at an additional cost
of $O.44 per pound. Product U can be sold for #4.50 per pound.
Prepare a differential
analysis dated September 77,2012, on whether to seIl Product T
(Alternative 1) or process
further into Product U (Alternative 2).
oBi. 1 EE?s-s ,. I PE 25-58 Process or sell
Product D is producedfor $52 per gallon. Product D can be sold
without additional processing
for $80 per gallon, or processed further into Product E at
^fi
additional cost of $19 per gallon.
Product E can be sold for $102 per gallon. Prepare a differential
analysis datedJune 9,2072,
on whether to sell Product D (Altemative l.) or process further
into Product E (Altemative 2).
6SJ,t EE25-6, ii PE 25-6A Accept business at special price
Product R is normally sold for $45 per unit. A special price of
$32 is offered for the export
market. The variable production cost is $25 per unit. An
additional export tariff of 1,5%
of revenue must be paid for all export products. Assume there is
sufficient capacity for
the special order. Prepare a differential analysis dated July 7,
20L2, on whether to reject
(Alternative 1) or accept (Alternative 2) the special order.

*Bi, X EE 25-6 r, I r PE 25-68 Accept business at special price
Product A is normally sold for $8.90 per unit. A special price of
$6.60 is offered for the
export market. The variable production cost is $5.10 per unit.
An additional export tariff
of 25o/o of revenue must be paid for all export products.
Assume there is sufficient capacity
for the special order. Prepare a differential analysis dated
January 22, 2012, on whether
to reject (Alternative 1) or accept (Alternative 2) the special
order.
OBJ.2 EE25-f 1: itf i Product cost markup percentage
nt tighting Inc. produces and sells lighting fixtures. An entry
light has a total cost
of $60 per unit, of which $32 is product cost and $28 is selling
and administrative ex-
penses. In addition, the total cost of $60 is made up of $40
variable cost and $20 fixed
cost. The desired profit is $12 per unit. Determine the markup
percentage on product cost.
CBJ.2 ZE25-7 ; ji, :t PE25-78 Product Cost markup percentage
Eden Garden Tools Inc. produces and sells home and garden
tools and equipment. A
lawnmower has a total cost of $200 per unit, of which $140 is
product cost and $60 is
selling and administrative expenses. In addition, the total cost
of $200 is made up of
$150 variable cost and $50 fixed cost. The desired profit is $38
per unit. Determine the
markup percentage on product cost.
TI

I
1178 Chapter 25
Learning Example
Abjectives Exercises
OBJ,3 EE25-8 l ti,,;
Differential Analysis, Product Pricing, and Activity-Based
Costing
Bottleneck profit
A has a unit contribution margin of $27. Product B has a unit
contribution margin
of $55. Product A requires three testing hours, while Product B
requires five testing hours-
Determine the most profitable product, assuming the testing is a
constraint.
OBJ.3 EE25-8 tt it PE 25-88 Bottleneck profit
Product K has a unit contribution margin of $160. Product L has
a unit contribution mar-
gin of $80. Product K requires eight furnace hours, while
Product L requires five furnace
hours. Determine the most profitable product, assuming the
furnace is a constraint.
oBJ.4 EE2s-9 it ii,ti PE 25-9A Activity-based costing
Maritime Marine Company has total estimated factory overhead
for the year of $900,000.
divided into four activities: fabrication, $33O,OOO; assembly,
$180,000; setup, $140,000:

and inspection, $250,000. Maritime manufactures two types of
boats: a speedboat and
a bass boat. The activity-base usage quantities for each product
by each activity are as
follows:
Fabrication Assembly Setup lnspection
Speedboat 1,000 dlh
Bass boat 1,500
2,s00 dlh
1,500 dlh 50 setups 100 inspections
1,000 90 400
?,59q dlh !19 setups I99 inspections
Each product is budgeted for 25O units of production for the
year. Determine (a) the
activity rates for each activity and (b) the factory overhead cost
per unit for each producr
using activity-based costing.
oBJ.4 EE25-e 1t i ii i PE 25-98 Activity-based costing
Urban Styles Inc. has total estimated factory overhead for the
year of $360,000, divided
into four activities: cutting, $120,000; sewing, $60,000; setup,
$100,000; and inspection.
$80,000. Urban Styles manufactures two types of men's pants:
jeans and khakis. The
activity-based usage quantities for each product by each activity
are as follows:
Cutting Sewing Setup lnspection
Jeans

Khakis
1,000 dlh
2,000
3,000 dlh
2,000 dlh
1,000
lpgg dlh
1,600 setups
400
2,000 setups
3,500 inspections
500
4,999 inspections
Each product is budgeted for 20,000 units of production for the
year. Determine (a) the
activity rates for each activity and (b) the factory overhead cost
per unit for each product
using activity based costing.
OBJ. 1
y' a. Differential
revenue from selling,

-s9,000
EX 25-1 Differential analysis for a lease or sell decision
Sure-Bilt Construction Company is considering selling excess
machinery with a book
value of $280,000 (original cost of $400,000 less accumulated
depreciation of $120,000)
for $276,000, less a 5o/obrokerage commission. Alternatively,
the machinery can be leased
for a total of $285,000 for five years, after which it is expected
to have no residual value.
During the period of the lease, Sure-Bilt Construction
Company's costs of repairs, insur-
ance, and properry tax expenses are expected to be #25,5OO.
a. Prepare a differential analysis, dated January 3, 2012, to
determine whether Sure-Bilt
should lease (Alternative 1) or sell (Alternative 2) the
machinery.

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