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Exercise 9-14
Exercise 9-14
Actual
$
(7,000.00)
$
115,200.00
$
108,200.00
F
U
Underappli
ed
LEARNING OBJECTIVES
1.
2.
3.
4.
Responsibility Accounting
System
Management
Control System
measures the results of
responsibility centers according
to information managers need to
operate their centers
approaches to manage their
diverse and complex activities:
centralized
Decentralized freedom for lower
manager to make decision
(autonomy)
LO 1
Cost
For ease of
gathering, using
local information
To focus central
management
To train & motivate
segment
managers,
To enhance
competition &
expose segments
to market forces
Leads to
suboptimal
(incongruent)
decision making
Focuses the
managers
attention on the
subunit rather than
company as a
whole
Increase the costs
of gathering
information
9
LO 1
Divisions
Divisions
Firm
commonly desentralize by
creating divisions differentiated
by:
types of goods or services
produced
geographic lines
type of responsibility
Responsibility Center: Is a
segment of the business whose
manager is accountable for
10
Decentralized Divisions
Based
on types of goods or
services produced
11
Responsibility centers
Major types of responsibility centers are:
Cost centers
Manager responsible for cost only
Revenue center
Manager responsible for sales only
Profit center
Manager responsible for sales & costs
Investment center
Manager responsible for sales, costs, &
capital investment
12
absorption costing
variable costing (direct costing)
They
13
Inventory
Inventory Valuation:
Valuation: Background
Background
Units in beginning inventory
Units produced
Units sold ($300 per unit)
Variable costs per unit
10,000
8,000
Direct materials
$ 50
Direct labor
Variable overhead
100
50
Fixed costs
Fixed overhead per unit produced
25
100,000
14
Absorption Costing
Direct materials
Direct labor
Variable overhead
Fixed overhead per unit produced
Unit product cost
50
100
50
25
$ 225
15
Variable Costing
Direct materials
Direct labor
Variable overhead
Unit product cost
50
100
50
$ 200
16
Absorption Income
Statement
Sales ($300 x 8,000)
Less Cost of goods sold
Gross margin
Less S&A expenses
Operating income
$ 2,400000
1,800,000
$ 600,000
100,000
$ 500,000
17
2,400,000
1,600,000
800,000
350,000
$
450,000
18
19
Absorption vs Variable
Generally
Exercise 10-3
24
Solution
Fixed Overhead
10750
1. Rate =
0/ 25000 =
4.3
Perbedaan Income Absorpsi - Variable:
=Fixed Overhead Rate x
(Unit Produced - Unit Sold)
= $4.3 x (25000-23000)
= $8,600
Sales
Less: Variable Expenses
Variable COGS
Variable Selling & Adm
Expenses
Less: COGS
Gross
Margin
$
294,400
$
92,000
$
386,400
$
211,600
Contribution Margin
Less: Fixed Expenses
$
Sales
$
598,000
$
393,300
$
204,700
$
118,800
$
85,900
Less: Selling
adm
85,900
&77,300
= $8,600
Operating Income
25
Evaluating Profit-Center
Managers
Variable
The
26
Under
Segment
Segment Reporting
Reporting
Segment
is a subunit of a
company of sufficient importance
to warrant performance reports
Can be in form of: divisions,
department, product lines, etc.
Fixed expenses on Segmented
income statement:
Direct fixed expenses
Common Fixed expenses
28
Fixed
Fixed Expenses
Expenses
Direct
Common
30
Exercise 10-4
31
Operating Income
Average Operating Assets
Operating
and taxes
Operating assets = all assets acquired to
generate operating income, including cash,
receivables, inventories, land, buildings, and
equipment
32
33
Exercise 10-6
OI
= sales expenses
= 50.000 48.000 = 2.000
Margin = OI/Sales
= 2.000/50.000 = 4%
Turnover = Sales/Operating asset
= 50.000/10.000 = 5x
ROI = Margin x Turnover
= 4% x 5 = 20%
34
Illustration
Computing
the
margin and
turnover ratios
for each division
gives a better
picture of what
caused the
change in rates
35
Cons
Encourages
managers to
focus on
Relationship
among sales,
expenses
Cost efficiency
Operating asset
efficiency
Can product a
narrow focus on
divisional
profitability at
expense of
profitability for
overall firm
Encourages
managers to
focus on short
run at expense of
long run
36
Minimum
38
LO 4
ADVANTAGES &
DISADVANTAGES: Residual Income
Advantage
Gives
another view
of project
profitability
Disadvantage
s
Can
encourage
short run
orientation
Direct
comparisons
are difficult
39
Exercise 10-11
Required
Compute Residual Income of each scenario
Compute ROI of each scenario
Which alternatives
that should manager
The MP3 player is added.
choose, if the
The voice recorder is added.
performance
Both investments are added.
Neither investment is made; the status quo is maintained
evaluation based on
(1) ROI, (2) Residual
Income?
40
Answer
ROI MP3 Player
ROI Voice recorder
Residual Income MP3 Player
Residual Income Voice Recorder
Alternatives
Operating income
Operating Asset
ROI
Minimum required
rate
Residual income
14.50%
14.00%
$20,000.00
$15,000.00
Without
Investment
MP3 Player
Voice recorder
Both Projects
2,700,000.00
2,816,000.00
2,805,000.00
2,921,000.00
18,000,000.00
18,800,000.00
18,750,000.00
19,550,000.00
15.00%
14.98%
14.96%
14.94%
12%
12%
12%
12%
540,000.00
560,000.00
555,000.00
575,000.00
$221,000
$1,550,000
$186,000
$35,000
41
EVA
Cost
of Capital
C* = [y x (Equity/CAPITAL)] +
(1+t) x i x (Debt/CAPITAL)
44
CHAPTER 10
THE
THE END
END
45