Fuentes Systems provides security software to law enforcement agencies. It has a sales force of 70 and has plans to add another 10–15 salespeople. Fuentes allocates corporate administrative costs based on the number of salespeople. The current total administrative cost of $2,184,000 comprise the costs of the human resources, payroll, accounting, and information technology departments. You manage the western region of Fuentes Systems with 18 salespeople and you plan to add one or two more salespersons. Each salesperson you hire costs $120,000, which includes salary, benefits, and payroll taxes. If you hire one additional salesperson, you expect that person will generate $185,000 of net operating margin for your region. Net operating margin is revenues less cost of sales and less travel and entertainment expenses associated with that salesperson. Net operating margin does not include the salary, benefits, and payroll taxes of the salesperson. If you hire two salespeople, the combined additional net operating margin added to your region is expected to be $323,000. You are evaluated and rewarded as a profit center, where profits are calculated as net operating margin less the total salaries, benefits, and payroll taxes of all salespeople employed in the region, plus allocated corporate administrative costs. Required: a. What is the current allocated administrative cost per salesperson? b. Assuming that your hiring of additional salespeople does not alter the allocated cost per salesperson, how many salespersons will you hire in the western region? c. Suppose that Fuentes hires an additional 10 salespeople, and the total corporate administrative cost rises from $2,184,000 to $2,640,000. Should Fuentes continue to allocate corporate administrative costs to the regions? Explain why or why not. d. Now suppose that Fuentes hires an additional 10 salespeople and the total corporate administrative cost rises from $2,184,000 to $2,200,000. Should Fuentes continue to allocate corporate administrative costs to the regions? Explain why or why not.
> Videx is the premier firm in the security systems industry. Martha Rameriz is an account manager at Videx responsible for selling residential systems. She is compensated based on beating a predetermined sales budget. The last seven yearsâ€
> Karsten Mills is one of the premier carpet manufacturers in the world. It manufactures carpeting for both residential and commercial applications. Home sales and commercial sales each account for about 50 percent of total revenue. The firm is organized i
> Golf ball manufacturer Trevino is generally regarded as the industry leader. It commands a 40 percent market share in its targeted channels of distribution and reported net profits of $31.5 million on sales of $171 million in the last fiscal year. A rece
> Warren City, with sales of $2 billion, produces and sells farm equipment. The manufacturing division produces some parts internally and purchases other parts from external suppliers and assembles farm equipment including tractors, combines, and plows. Wi
> The purchasing department at Feder buys all of its raw materials, supplies, and parts. This department is a cost center. It uses a flexible budget based on the number of different items purchased each month to forecast spending and as a control mechanism
> Cibo Leathers manufactures a line of designer purses and handbags, some selling for as much as $1,000 per bag. One particular style requires a hand-stitched shoulder strap of cow leather that has been predyed. Cibo purchases large sheets of predyed leath
> The admissions office of a large hospital has an annual operating budget of $700,000. These costs are distributed to inpatient departments (surgery, medicine, pediatrics, psychiatry) and to outpatient departments (drug treatment, prenatal care, and dialy
> You are working as a loan officer at TransPacific Bank and are analyzing a loan request for a client when you come across the following footnote in the client’s annual report: Inventories are priced at the lower of cost or market of materials plus other
> Massey Electronics manufactures heat sinks. Heat sinks are small devices attached to solid-state circuit boards that dissipate the heat from the circuit board components. Made of aluminum, the devices consist of many small fins cut in the metal to increa
> Navisky designs, manufactures, and sells specialized GPS (Global Positioning System) devices for commercial applications. For example, Navisky currently sells a system for environmental studies and is planning systems for private aviation and fleet manag
> Increased global competition has spurred most firms to take a hard look at their costs and become “lean and mean.” Rochco, a large industrial complex, has seen offshore competition erode its market share. This industrial site of over 100 functional depar
> Mat Machinery has received an order from Dewey Sales Corp. for special machinery. Dewey pays Mat Machinery a deposit of 10 percent of the sales price for the order. Just before the order is completed, Dewey Sales Corp. declares bankruptcy. Details of the
> Joe Bell, president and chief executive officer of Dyna Golf, has called a meeting of the executive committee of his board of directors. He is concerned about the price competition and declining sales of his golf wedge line of business. Bell summarizes t
> British Airways (BA) has implemented the balanced scorecard. Match the following performance indicators: Return on invested capital …….………..……On-time arrivals Earnings growth ……………………….…………Percent empty seats Lost baggage ……………………………………….Employee turnove
> Royal Holland is a cruise ship company. It currently has six ships and plans to add two more. It offers luxury passenger cruises in the Caribbean, Alaska, and the Far East. Management is currently addressing what to do with an existing ship, the S.S. Ams
> Magnetic resonance imaging (MRI) is a noninvasive medical diagnostic device that uses magnets and radio waves to produce a picture of an area under investigation inside the body. A patient is positioned in the MRI and a series of images of the area (say,
> Advanced Micro Processors (AMP) has designed a new dual-core microprocessor, dubbed DUALxl. DUALxl microprocessors are produced on silicon wafers with 100 chips per wafer. Once fabricated,the wafer is cut into individual microprocessors (also called &aci
> Vorma manufactures two proprietary all-natural fruit antioxidant food additives that are approved by the U.S. Food and Drug Administration. One is for liquid vitamins (LiqVita) and the other is used by dry cereal producers (Dry). Both of these products a
> Cogen’s Turbine Division manufactures gas-powered turbines for generating electric power and hot water for heating systems. Turbine’s variable cost per unit is $150,000 and its fixed cost is $1.8 million per month. It
> Adrian Power manufactures small power supplies for car stereos. The company uses flexible budgeting techniques to deal with the seasonal and cyclical nature of the business. The accounting department provided the accompanying data on budgeted manufacturi
> The city of Toledo has received a proposal to build a new multipurpose outdoor sports stadium. The expected life of the stadium is 20 years. It will be financed by a 20-year bond paying 8 percent interest annually. The stadium’s primary tenant will be th
> CJ Equity Partners is a privately held firm that buys small family-owned firms, installs professional managers to run the firms, and then sells them 3–5 years later, often for a substantial profit. CJ Equity is owned by four partners wh
> Wine Distributors is a wholesaler of wine, buying from wineries and selling to wine stores. Three different white wines are sold: Chablis, Chardonnay, and Riesling. Here are budgeted and actual sales data for the month of April. Required: Write a short m
> a. What is the difference between budget lapsing and line-item budgets? b. What types of organizations would you expect to use budget lapsing? c. What types of organizations would you expect to use line-item budgets?
> Winter Games manufactures a competitive line of skis and sells its skis to retailers at a price of $225 per pair. Based on an annual volume of 5,000 pairs, the cost per pair is $185: Sports Palace, a discount sporting goods store, currently purchases 500
> Employee bonuses at American InterConnect (AI), a large communications firm, depend on meeting a number of targets, one of which is a revenue target. Some bonus is awarded to the group if it meets or exceeds its target revenue for the year. The bonus is
> Using your knowledge of the relationship between inflation and nominal interest rates, and assuming that the savings were invested in government bills, comment briefly on the analysis presented in the following letter from the National Taxpayers Union: D
> Allied Adhesives (AA) manufactures specialty bonding agents for very specialized applications (electronic circuit boards, aerospace, health care, etc.). AA operates a number of small plants around the world, each one specializing in particular products f
> Home Auto Parts is a large retail auto parts store selling the full range of auto parts and supplies for do-it-yourself auto repair enthusiasts. The store is arranged with three prime displays in the store: front door, checkout counters, and ends of aisl
> a. Scottie Corporation has been offered a contract to produce 100 castings a year for five years at a price of $200 per casting. Producing the castings will require an investment in the plant of $35,000 and operating costs of $50 per casting produced. Fo
> Thermalloy makes extruded aluminum heat sinks that are small devices that help cool semiconductors and printed circuit boards. Thermalloy uses an absorption costing system whereby all fixed and variable manufacturing overhead is absorbed to manufactured
> Jan Vanderschmidt was the founder of a successful chain of restaurants located throughout Europe. He died unexpectedly last week at the age of 55. Jan was sole owner of the company’s common stock and was known for being very authoritarian. He made most o
> Tagway 4000 is a computer manufacturer based in Montana. One component of the computer is an internal battery that keeps track of the time and date while the computer is turned off. Tagway produces the batteries in-house. The division that produces the b
> Betterton Corporation manufactures automobile headlight lenses and uses a standard cost system. At the beginning of the year, the following standards were established per 100 lenses (a single batch). Expected volume per month is 5,000 direct labor hours
> Ed Koehler started Great Southern Furniture five years ago to assemble prefabricated bedroom furniture for large hotel chains. Hotels purchase furniture (beds, night stands, and chests of drawers) from manufacturers who ship the furniture to the hotels u
> You work in the Strategy Analysis department of On-Call, a worldwide paging firm offering satellite based digital communications through sophisticated pagers. On-Call is analyzing the possibility of acquiring AtlantiCom, an East Coast paging firm in Main
> Amy Laura is opening a snowboard rental store. She rents snowboards for skiing on a weekly basis for $75 per week including the boots. The skiing season is 20 weeks long. Laura can buy a snowboard and boots for $550, rent them for a season, and sell them
> PortCo Products is a divisionalized furniture manufacturer. The divisions are autonomous segments, each responsible for its own sales, costs of operations, working capital management, and equipment acquisition. Each division serves a different market in
> A company makes DVD players and incurs a variety of different costs. Place a check in the appropriate column if the cost is a product cost or a period cost. Further, classify each product cost as direct materials, direct labor, or manufacturing overhead.
> Coase Farm grows soybeans near property owned by Taggart Railroad. Taggart can build zero, one, or two railroad tracks adjacent to Coase Farm, yielding a net present value of $0, $9 million, or $12 million. Value of Taggart Railroad
> Picture Maker is a freestanding photo kiosk consumers use to download their digital photos and make prints. Shashi Sharma has a small business that leases several Picture Makers from the manufacturer for $120 per month per kiosk, and she places them in h
> Goodstone Tires designs, manufactures, and sells automotive tires through three profit centers (divisions): Passenger Vehicles, Industrial Vehicles, and Racing. The Racing Division develops state-of the-art high-performance racing tires for NASCAR, grand
> Taylor designs and manufactures high-performance bicycle chains for professional racers and serious amateurs. Two new titanium chain sets, the Challenger and the Tour, sell for €110 and €155, respectively. The following
> Howard Binding manufactures two types of notebooks: large and small. The large and small notebooks are made of the same cloth cover (direct materials) but in different quantities. The standard cost sheet for each follows. At the beginning of the month, t
> The following figures were taken from the records of Wellington Co. for the year 2008. At the end of the year, two jobs were still in process. Details about the two jobs include: Wellington Co. applies overhead at a budgeted rate, calculated at the begin
> An investment under consideration has a payback of five years and a cost of $1,200. If the required return is 20 percent, what is the worst-case NPV? Explain fully.
> Brickley Chains produces five different styles of silver chains, A, B, C, D, and E, in a highly automated batch machining process. The following table summarizes the production and cost data for the five products. Annual overhead is $80,000. Required: a.
> UniCom produces a wide range of consumer electronics. UniCom’s Newark, New York, plant produces two types of cordless phones: 2.4 GHz and 6.0 GHz. The following table summarizes operations at the Newark UniCom plant for the years 2009 a
> Vigdor processes cut trees into various wood products, veneers, lumber, wood chips, and so forth. Each of the products can be sold immediately upon processing the trees, or processed further and sold as a finished product. The following table lists the f
> You are working in the office of the vice president of administration at International Telecon (IT) as a senior financial planner. IT is a Fortune 500 firm with sales approaching $1 billion. IT provides long-distance satellite communications around the w
> Joint Products, Inc., produces two joint products, X and V, using a common input. These are produced in batches. The common input costs $8,000 per batch. To produce the final products (X and V), additional processing costs beyond the split-off point must
> Mail delivery during the Christmas holidays of 1990 to U.S. troops stationed in Saudi Arabia for Operation Desert Storm was haphazard. So many letters and packages were mailed during the holidays, that warehouse space in Germany, which was the intermedia
> U.S. Pump is a multidivisional firm that manufactures and installs chemical piping and pump systems. The valve division makes a single standardized valve. The valve division and the installation division are currently involved in a transfer pricing dispu
> A large consulting firm is looking to expand the services currently offered its clients. The firm has developed a new performance metric called “Economic Earnings,” or EE for short. The performance metric is argued to be a better measure of both division
> A textbook on organization theory says: Drawing upon the writings of Maslow, McGregor presented his Theory X–Theory Y dichotomy to describe two differing conceptions of human behavior. Theory X assumptions held that people are inherently lazy, they disli
> The following data are available for the Megan Corp. finishing department for the current year. The department makes a single product that requires three hours of labor per unit of finished product. Budgeted volume for the year was 30,000 direct labor ho
> You are considering buying a $50,000 car. The dealer has offered you a 13.6 percent loan with 30 equal monthly payments. On questioning him, you find that the interest charge of $17,000 (or 0.136 x $50,000 x 2.5 years) is added to the $50,000 for a total
> Medical Instruments produces a variety of electronic medical devices. Medical Instruments uses a standard cost system and computes price variances at the time of purchase. One product, a thermometer, measures patient temperatures orally. It requires a si
> Flower City Cartridges (FCC) manufactures replacement cartridges for desktop printers. FCC uses standard costs within a job order cost system. In June, FCC purchased 18 gallons of blue ink for $385.20 and produced the following four different cartridge j
> American Cinema shows first-run movies. It pays the company distributing the movies a fixed fee of $1,000 per week plus a percentage of the gross box office receipts. In the first two weeks a movie is released, the theater pays the fixed fee of $1,000 pe
> Marti Meyers, vice president of marketing for LaserFlo, was concerned as she reviewed the costs for the AP2000 laser printer she was planning to launch next month. The AP2000 is a new commercial printer that LaserFlo designed for medium-size direct mail
> Candice Company has decided to introduce a new product that can be manufactured by either of two methods. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs of the two methods are as follows: Candice&ac
> Wedig Diagnostics manufactures two laser photometers that are used in preparing DNA tests. The U.S. model is designed for use in the United States and the EU model is designed to meet the specifications in most of the European Union. Both models are manu
> Hochstedt is a German firm with a wholly owned U.S. subsidiary. The parent firm manufactures and exports products from Germany to its U.S. subsidiary for sale in the United States. Hochstedt also has wholly owned subsidiaries in 14 other countries. The f
> Dr. Na Gu plans to open a radiology office that provides CAT scans. She can lease the CAT scanner for $1,200 per month plus $45 for each imaging session. In addition to the $45 lease cost per imaging session, Dr. Gu must purchase film for each session at
> “I used to run the company that made Formula 409, the spray cleaner. From modest entrepreneurial beginnings, we’d gone national and shipped the hell out of P&G, Colgate, Drackett, and every other giant that raised its head. From the beginning, I’d employ
> Emrich Processing is a small custom stainless steel parts processor. Customers send new and used stainless steel parts to Emrich for cleaning in various acid baths to remove small imperfections or films on the surface. These parts are used in a variety o
> The Stowbridge Division is analyzing expanding its Total Quality Management program. It already has a TQM program in place. However, one of its customers, Amlan Equipment, is asking all suppliers to become ISO 9000–qualified, a process that certifies tha
> Printers, Inc., manufactures and sells a midvolume color printer (MC) and a high-volume color printer (HC). Each MC requires 100 direct labor hours to manufacture and each HC requires 150 direct labor hours. At the beginning of the year, 700 MCs are sche
> The soldering department of Xtel Circuits solders integrated circuits onto circuit boards. The department is highly automated. The existing machinery is state of the art, having been installed only 15 months ago. Overhead in the department is allocated b
> Simple Plant manufactures DNA test strips. Manufacturing overhead is applied to units produced using direct labor dollars as the allocation base. The overhead rate is calculated prior to the beginning of the fiscal year that runs January 1 to December 31
> Marian Health Care is a large hospital system outside Chicago that offers both hospital (inpatient) and clinic (outpatient) services. It has a centralized admissions office that admits and registers clients, some of whom are seeking inpatient hospital se
> Houston Milling is a subcontractor to Pratt & Whitney, which makes jet engines. Houston Milling makes two different fuel pump housings for two Pratt & Whitney jet engines: the A11 housing and the D43. These pump housings are received from Pratt &
> CLIC manufactures two types of cigarette lighters: Basic and Super. A new plant began producing both lighter models this year. The following variable costing statement summarizes the first year of operations: For internal control purposes, variable costi
> Chemtrex is an agricultural chemical producer. Process costing is used in its mixing department. At the beginning of July, Chemtrex had 700,000 gallons 70 percent complete in work in process. During July, it started another 4,000,000 gallons and produced
> Beckett is a large car dealership that sells several different automobile manufacturers new cars (Toyota, Ford, Lexus, and Subaru). Beckett also consists of a Pre-owned Cars Department and a large service department. Beckett is organized into three profi
> Two genetically engineered enzymes are produced simultaneously from a series of chemical and biological processes: Q enzyme and Y enzyme. The cost per batch of Q and Y enzymes is $200,000, resulting in 300 grams of Q and 200 grams of Y. Before Q and Y ca
> Kay Enterprises is a small, family-owned and managed business. It has a patented production process for manufacturing a digital switch used in large telephone switches. It manufactures two models in its plant in Atlanta, Georgia. The U.S. model is sold t
> New York Fashions owns 87 women’s clothing stores in shopping malls. Corporate headquarters of New York Fashions uses flexible budgets to control the operations of each of the stores. The following table presents the August flexible bud
> Your boss, the vice president of corporate accounting, has just returned from a two-week seminar in Maui on activity-based cost accounting. He says he wants to completely overhaul the company’s existing absorption-based accounting system. “Activity-based
> Overland Steel operates a coal-burning steel mill in New York state. Changes in the state’s air quality control laws will result in this mill’s incurring a $1,000 per day fine (which will be paid at the end of the year) if it continues to operate. The mi
> Five departments of National Training Institute, a nonprofit organization, share a rented building. Four of the departments provide services to educational agencies and have little or no competition for their services. The fifth department, Technical Tra
> Data for the Bidwell Company are as follows: Required: a. Based on the preceding data, calculate break-even sales in units. b. If Bidwell Company is subject to an effective income tax rate of 40 percent, calculate the number of units Bidwell would have t
> Kollel is a private hospital that operates in a large metropolitan area. The hospital admits “regular” patients and “private” patients. Regular patients are admitted and treated by s
> J.P. Max is a department store carrying a large and varied stock of merchandise. Management is considering leasing part of its floor space for $72 per square foot per year to an outside jewelry company that would sell merchandise. Two areas currently in
> Potter-Bowen (PB) manufactures and sells postage meters throughout the world. Postage meters print the necessary postage on envelopes, eliminating the need to affix stamps. The meter keeps track of the postage, the user takes the meter’s counter to a pos
> Portable Phones, Inc., manufactures and sells wireless telephones for residential and commercial use. Portable Phones’ plant is organized by product line, with five phone assembly departments in total. Each of these five phone assembly departments is res
> “It was in Deyang in 1969 that I came to know how China’s peasants really lived. Each day started with the production team leader allocating jobs. All the peasants had to work, and they each earned a fixed number of ‘work points’ (gong-fen) for their day
> US Copiers manufactures a full line of copiers including desktop models. The Small Copier Division (SCD) manufactures desktop copiers and sells them in the United States. A typical model has a retail price of less than $500. An integral part in the copie
> Some economists (e.g., Hayek) argue that decentralization of economic decisions in the economy leads to efficient resource allocation. What differences exist within the firm that make the link between decentralization and efficiency less clear?
> Federal Mixing (FM) is a division of Federal Chemicals, a large diversified chemical company. FM provides mixing services for both outside customers and other Federal divisions. FM buys or receives liquid chemicals and combines and packages them accordin
> Mr. Jones intends to retire in 20 years at the age of 65. As yet he has not provided for retirement income, and he wants to set up a periodic savings plan to do this. If he makes equal annual payments into a savings account that pays 4 percent interest p
> Taylor Chemicals produces a particular chemical at a fixed cost of $1,000 per day. The following table displays how marginal cost varies with output (in cases): Required: a. Given the preceding data, construct a table that reports total cost and average
> Telephone Computer Corporation (TCC) manufactures and sells two computerized directory assistance computers to telephone companies. The firm has its own sales force that sells directly to the phone companies. TCC currently sells two computer systems: the
> You are working for an investment banking firm. One of your clients is examining the possibility of purchasing Stirling Manufacturing, a parts supplier (specifically, tail-light assemblies) to the automobile industry. Stirling has sales of $130 million a
> Kinsley & Sons is a large, successful direct-mail catalog company in the highly competitive market for upscale men’s conservative business and business-casual dress wear. On sales of $185 million they had earnings of $13 million. Most of the sales are fr
> WWWeb Marketing is a decentralized firm specializing in designing and operating Internet marketing Web sites. The firm is four years old and has been growing rapidly, but it only shows a small profit. WWWeb has three profit centers: Design Division, Serv
> Western Sugar processes sugar beets into granulated sugar that is sold to food companies. It uses a standard cost system to aid in cost control and performance evaluation. To compute the standards for next year, the actual expense incurred by expense cat
> Avant Designs designs and manufactures polished-nickel fashion bracelets. It offers two bracelets: Aztec and Mayan. The following data summarize budgeted operations for the current year: Budgeted fixed manufacturing overhead for the year was $258,000. Re
> The PQR Coal Company has several conventional and strip mining operations. Recently, new legislation has made strip mining, which produces coal of high sulfur content, unprofitable, so those operations will be discontinued. Unfortunately, PQR purchased $
