Question

In: Accounting

Questions 32-33 use the information that follows. Argentina Corporation has three divisions: Pulp, Paper, and Fibers....

Questions 32-33 use the information that follows.

Argentina Corporation has three divisions: Pulp, Paper, and Fibers. Argentina’s new controller, David Fisher, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information for each division for 2017:

	Pulp	Paper	Fiber
Revenues	$19,600	$34,200	$51,000
Direct manufacturing costs	7000	15,600	22,200
Division administrative costs	6600	4000	9400
Division margin	$6000	$14,600	$19,400
Number of employees	150	75	275
Floor space (sq. ft.)	26,600	17,670	50,730

Argentina Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Fisher asks for a list of costs that compromise fixed corporate overhead and suggests the following new allocation bases:

fixed corporate-overhead costs		suggested allocation bases
human resource management	$4,600	number of employees
facility	6,400	floor space (sq. ft.)
corporate administration	9,200	division administrative costs
total	$20,200

32. Allocate 2017 fixed-corporate overhead costs to the three divisions using division margin as the allocation base. What is each division’ operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)?

33. Allocate 2017 fixed costs using the allocation bases suggested by Fisher. What is each division’s operating margin percentage under the new allocation scheme?

Thanks

Expert Solution

(1)

Pulp

Paper

Fibres

Percentage Margin

(6000/40000)

=15%

(14600/40000)

=36.5%

(19400/40000)

=48.5%

Employees

(150/500)

=30%

(75/500)

=15%

(275/500)

=55%

Floor Space

(26600/95000)

=28%

((17670/95000)

=18.60%

(50730/95000)

=53.40%

Adm Office

(6600/20000)

=33%

(4000/20000)

=20%

(9400/20000)

=47%

	Pulp	Paper	Fibres	Total
Division Margin	6000	14600	19400	40000
O/H allocated	(20200 * 15%) =3030	(20200 * 36.5%) =7373	(20200 * 48.5%) =9797	20200
Operation Margin	2970	7227	9603	19800
Revenue	19600	34200	51000	104800
Revenue %	15.15%	21.13%	18.83%	18.89%

(2)

	Pulp	Paper	Fibres	Total
Division Margin	6000	14600	19400	40000
Human resource management	(4600 * 30%) =1380	(4600 * 15%) =690	(4600*55%) =2530	4600
Facility Costs	(6400 * 28%) =1792	(6400 * 18.60%) =1190.40	(6400*53.40%) =3417.60	6400
Corp Admin	(9200 * 33%) =3036	(9200 * 20%) =1840	(9200 * 47%) =4324	9200
Corp O/H Allocated	6208	3720.40	10271.60	20200
Operating Margin	(208)	10879.60	9128.4	19800
Revenue	19600	34200	51000	104800
Revenue %	-1.06%	31.81%	17.90%	18.89%

ekkarill92 answered 2 years ago

Kalamazoo Paper Company has three divisions: Recycling, Cardboard, and Paper. In order to determine the profit...

Kalamazoo Paper Company has three divisions: Recycling, Cardboard, and Paper. In order to determine the profit provided by each division, the company allocates all costs to the three divisions. As a result, for the year ended December 31, 2015, Kalamazoo reported a profit of $50,000 for Recycling, a profit of $60,000 for Paper, and a loss of $30,000 for Cardboard. If Cardboard has avoidable costs of $40,000 and unavoidable costs of $50,000 which of the following actions should be taken...

Use the information below to answer the questions that follow. Wang Corporation follows generally accepted accounting...

Use the information below to answer the questions that follow. Wang Corporation follows generally accepted accounting principles in accounting for uncollectibles. Wang received notification from a bankruptcy court that its customer, Timber Creek, had been adjudicated and released from all claims presently pending against it by Wang Corporation. Frank Wang, owner of Wang Corporation, was not at all pleased with this decision. Frank had anticipated recovering at least $50,000 from Timber Creek, and that balance remained in the Accounts Receivable...

Use the following information about Valerie Sporty to answer Questions 28 – 32. Valerie Sporty has...

Use the following information about Valerie Sporty to answer Questions 28 – 32. Valerie Sporty has just acquire a brand-spanking new, shiny red sports car (for her business, of course) at a cash price of $70,000. She put a certain amount down and financed the balance with a note requiring that Valerie make five equal year-end payments to retire the debt. A partial amortization table is as follows: Period Payment Interest Principal Carrying Value 0 $60,000 1 $15,426 $5,400 $10,026...

Use the following information to answer questions 33 – 34: JNR Co. signs a contract to...

Use the following information to answer questions 33 – 34: JNR Co. signs a contract to provide three different products to a customer for a total transaction price of $750,000. Each product represents a separate performance obligation. JNR Co. only sells two of the three products on an individual basis so it must estimate the standalone selling price for the third product. JNR Co.’s cost accountants are able to forecast the cost of each product. JNR Co. has also scanned...

Use the following information for questions 29 – 32 regarding Peach Co. in 2017 (assume this...

Use the following information for questions 29 – 32 regarding Peach Co. in 2017 (assume this is the first year of operations for Peach Co., and assume Peach pays cash unless noted otherwise). Peach’s year-end is December 31. Assume Peach uses FIFO perpetual for inventory, straight-line depreciation, and estimates it will not collect 4% of accounts receivable. 1/1 Issues 10,000 shares of common stock for $5 each. 2/15 Purchase 2,000 units of inventory at $4/unit. 3/1 Sells 500 units of...

Use the following information for questions 11 through 14. In a paper, “The effect of marquee...

Use the following information for questions 11 through 14. In a paper, “The effect of marquee players on sports demand,” by Todd Jewell, the author regresses US soccer attendance on various attributes of the team, stadium, opponent and city, and also on the presence of some particularly famous players, like Beckham and Blanco. The dependent variable is log attendance; so the coefficient should be interpreted as a percent change. That is, a coefficient of 0.43 means the effect of a...

Use the following information for questions 1-7. A corporation has 9,000,000 shares of stock outstanding at...

Use the following information for questions 1-7. A corporation has 9,000,000 shares of stock outstanding at a price of $40 per share. They just paid a dividend of $2 and the dividend is expected to grow by 5% per year forever. The stock has a beta of .9, the current risk free rate is 4%, and the market risk premium is 6%. The corporation also has 300,000 bonds outstanding with a price of $1,100 per bond. The bond has a...

USE THE FOLLOWING INFORMATION FOR THE NEXT 2 INDEPENDENT QUESTIONS: Tremaine Inc. has three product...

USE THE FOLLOWING INFORMATION FOR THE NEXT 2 INDEPENDENT QUESTIONS: Tremaine Inc. has three product lines: A, B, and C. A B C Total Sales $50,000 $85,000 $90,000 $225,000 Variable costs 30,000 30,000 44,000 104,000 Contribution margin 20,000 55,000 46,000 121,000 Fixed costs 23,000 25,000 18,000 66,000 Net income $ (3,000) $30,000 $28,000 $ 55,000 28. Management is considering dropping product line A. If it is discontinued, $18,000 of its fixed costs are DTFC & can be avoided....

Corporation has two divisions: Blue Division and Gray Division. The following financial information is for the...

Corporation has two divisions: Blue Division and Gray Division. The following financial information is for the most recent operating period: Blue Gray Division Division Sales 100,000 367,500 Variable Expenses 45,000 147,000 Traceable Fixed Expenses 37,950 139,800 Common fixed expense for Benson Corporation was $65,270. A. A properly constructed segmented income statement in the contribution format would show that net operating income of the whole company was: B. The Blue Division's break-even sales is closest to: C. What is the company's...

Use the following information to answer questions 27 - 32 Silly Sally, Inc. Silly Sally, Inc....

Use the following information to answer questions 27 - 32 Silly Sally, Inc. Silly Sally, Inc. forecasts the following sales levels: January, $420; February, $435; March, $450; and April, $470. Historically, 40% of its sales are for cash. Of the remaining sales, 80% are collected in one month, 15% are collected in the second month, while the rest remain uncollected. November sales were $380 and December sales were $500. (all values $000) Purchases are made at 60% of the next...