This question has 9 parts to it: Please answer the follwing:

1. Blueprint Problem: Profit Centers and Segmented Income Statements

   Centralized and Decentralized Operations

   In a centralized company, all major planning and operating decisions are made by top management. For example, a one-person, owner-manager-operated company is centralized because all plans and decisions are made by one person. In a decentralized company, managers of separate divisions or units are delegated operating responsibility. The division (unit) managers are responsible for planning and controlling the operations of their divisions. For example, in some companies, division managers have authority over profits but not fixed asset purchases.

   In a small owner-manager-operated business, BLANK? decentralization centralizationCorrect 1 of Item 1 may be desirable. This is because the owner-manager's close supervision ensures that the business will be operated in the way the owner-manager wishes.

   Profit Center Performance

   In a decentralized business, accounting assists managers in evaluating and controlling their areas of responsibility, called responsibility centers. Many companies use responsibility centers to achieve goals between a segment of the company and the company itself. Responsibility centers are normally one of four types: cost (or expense) center, revenue center, profit center, or investment center.

   The center's name indicates the type of function. For example, a profit center is a segment of the business for which a manager has the responsibility and authority for making decisions that affectSelect only revenues only expenses revenues and costsCorrect 2 of Item 1 and, thus, profits.

   The profit center income statement should include BLA revenues and expenses only revenues and expenses that are not controlled only revenues and expenses that are controlledCorrect 3 of Item 1 by the manager. Controllable revenues are revenues earned by the profit center. Controllable expenses are costs that can be influenced (controlled) by the decisions of profit center managers.

   Hide APPLY THE CONCEPTS: Construction of a segmented income statement Ross has decided to expand its business into cookware, and plans to manufacture standard, deluxe, and economy cookware in one factory. Common fixed overhead for the factory is estimated to be $42,000, and common selling and administrative expenses are estimated to be $7,000. Sales commissions (a variable cost) of 3% of sales are paid on all product lines. The following estimates are available for 2012: Standard Deluxe Economy Sales $175,000 $315,000 $210,000 Variable cost of goods sold 87,500 126,000 63,000 Direct fixed overhead 16,450 53,865 35,175 Direct fixed selling and administrative expenses 8,225 35,910 16,884 Using this information, construct a segmented income statement that displays the income statement information for each segment of the business and for the business as a whole. Enter all amounts as positive numbers. If required, round amounts to the nearest cent. Ross Company Segmented Income Statement For the Year 2012 Standard Deluxe Economy Total Sales $ $ $ $ Variable cost of goods sold Variable selling expense Contribution margin $ $ $ $ Less direct fixed expenses: Direct fixed overhead Direct selling and administrative Segment margin $ $ $ $ Less common fixed expenses: Common fixed overhead Common selling and administrative Operating income $ 2) Blueprint Problem: Return on investment, margin, and turnover Return on Investment (ROI) The manager of an investment center should be evaluated based on revenues, costs, and investments. An evaluation based on net income ignores the amount of investment the investment center required. One way to measure operating profit in relation to investment is a calculation called the return on investment. One formula for calculating return on investment is: Income from Operations Invested Assets ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment. APPLY THE CONCEPTS: Calculating return on investment The divisional income statements for three divisions of the Chung Company are shown. Chung Company Divisional Income Statements For the Year Ending December 31, 2012 Division A Division B Division C Sales Revenue $868,600 $1,213,000 $283,500 Operating expenses 512,474 909,750 150,255 Income from operations before service-department charges $356,126 $303,250 $133,245 Service-department charges 225,836 157,690 93,555 Income from operations $130,290 $145,560 $39,690 Additional financial data from the three divisions of the Chung Company are shown. Division A Division B Division C Invested assets $1,010,000 $606,500 $405,000 Calculate the return on investment for each division. When required, round the ROI to the nearest hundredth of a percent (for example, 16.943% would be rounded to 16.94%). Division A Division B Division C Return on investment % % % Margin and Turnover One way to analyze the difference in return on investment for each division is to separate the return on investment formula into two calculations: margin and turnover. Margin shows the relationship between income from operations and sales. It measures the profit earned for each dollar of sales, which is a measure of SelectprofitabilityefficiencyCorrect 1 of Item 2. Turnover shows the relationship between sales and invested assets. It measures how many dollars of sales result from each dollar of invested assets, which is a measure of SelectprofitabilityefficiencyCorrect 2 of Item 2. The formulas for margin and turnover are: Margin = SelectIncome from OperationsInvested AssetsSalesCorrect 3 of Item 2 SelectIncome from OperationsInvested AssetsSalesCorrect 4 of Item 2 Turnover = SelectIncome from OperationsInvested AssetsSalesCorrect 5 of Item 2 SelectIncome from OperationsInvested AssetsSalesCorrect 6 of Item 2 APPLY THE CONCEPTS: Calculating margin and turnover Calculate the margin and the turnover for each division. When required, round margin to the nearest tenth of a percent (for example, 14.6%) and turnover to two decimal places (for example, 0.82). Division A Division B Division C Margin % % % Turnover The division showing the highest operating profitability is Division SelectBACCorrect 7 of Item 3. The division showing the highest operating efficiency is Division SelectABCCorrect 8 of Item 3. APPLY THE CONCEPTS: Using margin and turnover to calculate return on investment A second way to calculate return on investment (ROI) is Return on Investment = Margin x Turnover. Using the margins and turnovers you recorded above, calculate the return on investment for each division. When required, round the return on investment to the nearest hundredth of a percent (for example, 16.94%). Calculate the return on investment for each division. Round the ROI to the nearest hundredth of a percent (for example, 16.94%). Division A Division B Division C Return on investment % % % APPLY THE CONCEPTS: Determining which ROI formula to use There are two formulas for calculating ROI: ROI = Income from Operations / Invested Assets ROI = Margin x Turnover a. Margin can be tracked separately. SelectYesNoCorrect 1 of Item 5 b. If ROI changes, managers can determine which factor caused overall ROI to change. SelectYesNoCorrect 2 of Item 5 c. It is easier to calculate. SelectYesNoCorrect 3 of Item 5 d. Turnover can be tracked separately. SelectYesNoCorrect 4 of Item 5 e. Both formulas give exactly the same information, so there is no reason to use the second formula. SelectYesNoCorrect 5 of Item 5 Why would a company use the second formula (ROI = Margin x Turnover) to calculate ROI? Select the YES or NO to the following statements. 3) Blueprint Problem: Cost-Based Decision Making - Keep or drop decisions Differential Analysis: Keep-or-Drop Decisions Managers must often decide between two or more alternatives. Differential analysis is used in decision making. When using differential analysis, it is important to only include those amounts that are different between the alternatives. Differential cost is subtracted from differential revenue to determinedifferential income/loss. Differential analysis requires that relevant costs must be identified. When determining which costs are relevant, which of the following statements is true? SelectAll fixed costs are irrelevant.All mixed costs are relevant.All variable costs are relevant.Relevancy must be determined on a case-by-case basis.Correct 1 of Item 1 For example, a manufacturing company may have a segment or product that is operating at a loss. The decision to keep the segment/product or discontinue it is called a keep-or-drop decision and uses differential analysis to assist in the decision-making process. Differential analysis is only one step in deciding to keep or drop the segment or product. Management must also take into consideration nonquantitative data. If the company drops a product, will it affect the sales of other products? If employees are laid off or terminated, will it affect employee morale? These nonquantitative issues will influence the success or failure of a keep-or-drop decision. APPLY THE CONCEPTS: Calculate remaining cost in a keep-or-drop decision City Corporation makes three products: snowboards, skateboards, and skis. The contribution margin income statement for each department is provided: Snowboards Skateboards Skis Sales $195,000 $160,000 $180,000 Less: variable expenses 78,000 13,000 63,000 Contribution margin $117,000 $147,000 $117,000 Less: fixed expenses: Salaries $68,250 $56,000 $72,000 Depreciation 18,000 24,000 36,000 Advertising 4,700 8,000 54,000 Net income (loss) $26,050 $59,000 $-45,000 The net income for skis has been negative for several periods despite management's efforts to increase sales and decrease expenses. Therefore, City Corporation is considering discontinuing production of skis. If the ski line is dropped, all variable costs currently associated with that department will be eliminated, as will all advertising costs, but only 90% of the salaries currently associated with that department will be eliminated. If the ski line is dropped, what amount of salaries will remain? Select$0$64,800$7,200$72,000Correct 1 of Item 2 APPLY THE CONCEPTS: Calculate differential income in a keep-or-drop decision Complete the table to compare the effects of dropping the ski line of products. Enter all amounts as positive numbers except for a net loss. If an amount is zero, enter "0". The cost data for the each department is shown below. Snowboards Skateboards Skis Sales $195,000 $160,000 $180,000 Less: variable expenses 78,000 13,000 63,000 Contribution margin $117,000 $147,000 $117,000 Less: fixed expenses: Salaries $68,250 $56,000 $72,000 Depreciation 18,000 24,000 36,000 Advertising 4,700 8,000 54,000 Net income (loss) $26,050 $59,000 $-45,000 Alternatives Differential Effect Keep Drop Increase/Decrease Sales $ $ Less: variable expenses Contribution margin $ $ Less: fixed expenses: Salaries $ $ $ Depreciation Advertising Net income (loss) $ $ $ Based on the analysis, City Corporation should SelectdropkeepCorrect 22 of Item 3 the ski line. If the ski line is dropped, its overall income will SelectincreasedecreaseCorrect 23 of Item 3. Check