TEST BANK managerial accounting 13e by garrison chapter 12

Chapter 12 Segment Reporting and Decentralization
True/False Questions
1. Allocating common fixed costs to segments on segmented income statements reduces
the usefulness of such statements.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Easy
2. A segment is any part or activity of an organization about which a manager seeks cost,
revenue, or profit data.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Easy
3. A responsibility center is a business segment whose manager has control over costs,
revenues, or investments in operating assets.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Easy
4. Residual income is used in the numerator to compute turnover in an ROI analysis.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
5. Net operating income is earnings before interest and taxes.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 2 Level: Easy
6. Land held for possible plant expansion would be included as an operating asset in the
ROI calculation.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
7. Margin equals Stockholders' Equity divided by Sales.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy

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Chapter 12 Segment Reporting and Decentralization
8. The use of return on investment (ROI) as a performance measure may lead managers
to reject a project that would be favorable for the company as a whole.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
9. Residual income is equal to the difference between total revenues and operating
expenses.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
10. When using residual income as a measure of performance, it is not meaningful to
compare the residual incomes of divisions of different sizes.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
11. The transfer price used for internal transfers between divisions of the same company
can increase or decrease each division's reported profits.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12A LO: 4 Level: Medium
12. For performance evaluation purposes, the lump-sum amount of fixed service
department costs charged to an operating department should usually be based on either
the operating department's peak-period or long-run average needs.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
13. In service department cost allocations, sales dollars should be used as an allocation
base whenever possible.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
14. A cost center is also a responsibility center.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

AICPA FN: Reporting LO: 6 Level: Easy

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Chapter 12 Segment Reporting and Decentralization
15. The basic objective of responsibility accounting is to charge each manager with those
costs and/or revenues over which he has control.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Multiple Choice Questions
16. The impact on net operating income of short-run changes in sales for a segment can be
most clearly predicted by analyzing:
A) the contribution margin ratio.
B) the segment margin.
C) the ratio of the segment margin to sales.
D) net sales less segment fixed costs.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
17. In a segmented contribution format income statement, what is the best measure of the
long-run profitability of a segment?
A) its gross margin
B) its contribution margin
C) its segment margin
D) its segment margin minus an allocated portion of common fixed expenses
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Medium
18. In order to properly report segment margin as a guide to long-run segment profitability

and performance, fixed costs must be separated into two broad categories. One
category is common fixed costs. What is the other category?
A) discretionary fixed costs
B) committed fixed costs
C) traceable fixed costs
D) specialized fixed costs
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Easy

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Chapter 12 Segment Reporting and Decentralization
19. Which of the following segment performance measures will decrease if there is an
increase in the interest expense for that segment?
A)
B)
C)
D)

Return on Investment Residual Income
Yes
Yes
No
Yes
Yes
No
No

No

Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2; 3 Level: Hard
20. Which of the following segment performance measures will increase if there is a
decrease in the selling expenses for that segment?
A)
B)
C)
D)

Return on Investment Residual Income
Yes
Yes
No
Yes
Yes
No
No
No

Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2; 3 Level: Medium
21. Some investment opportunities that should be accepted from the viewpoint of the
entire company may be rejected by a manager who is evaluated on the basis of:
A) return on investment.
B) residual income.
C) contribution margin.
D) segment margin.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting LO: 2 Level: Medium

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Chapter 12 Segment Reporting and Decentralization
22. Consider the following three conditions:
I.
II.
III.

An increase in sales
An increase in operating assets
A reduction in expenses

Which of the above conditions provide a way in which a manager can improve return
on investment?
A) Only I
B) Only I and II
C) Only I and III
D) Only II and III
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
23. When calculating a segment's return on investment (ROI), which of the following
assets of that segment would be considered a part of average operating assets?
A) cash
B) accounts receivable
C) plant and equipment

D) all of the above
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
24. Which of the following measures of performance encourages continued expansion by
an investment center so long as it is able to earn a return in excess of the minimum
required return on average operating assets?
A) return on investment
B) transfer pricing
C) the contribution approach
D) residual income
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy

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Chapter 12 Segment Reporting and Decentralization
25. Residual income is:
A) Net operating income plus the minimum required return on average operating
assets.
B) Net operating income less the minimum required return on average operating
assets.
C) Contribution margin plus the minimum required return on average operating
assets.
D) Contribution margin less the minimum required return on average operating
assets.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy

26. Which of the following is NOT a common approach used to set transfer prices?
A) market price
B) variable cost
C) negotiation
D) suboptimization
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12A LO: 4 Level: Easy
27. For performance evaluation purposes, the variable costs of a service department
should be charged to operating departments using:
A) the actual variable rate and the budgeted level of activity for the period.
B) the budgeted variable rate and the actual level of activity for the period.
C) the budgeted variable rate and the budgeted level of activity for the period.
D) the actual variable rate and the peak-period or long-run average servicing
capacity.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium

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Chapter 12 Segment Reporting and Decentralization
28. Which of the following companies is following a policy with respect to the costs of
service departments that is not recommended?
A) To charge operating departments with the depreciation of forklifts used at its
central warehouse, Shalimar Electronics charges predetermined lump-sum
amounts calculated on the basis of the long-term average use of the services
provided by the warehouse to the various segments.
B) Manhattan Electronics uses the sales revenue of its various divisions to allocate

costs connected with the upkeep of its headquarters building.
C) Rainier Industrial does not allow its service departments to pass on the costs of
their inefficiencies to the operating departments.
D) Golkonda Refinery separately allocates fixed and variable costs incurred by its
service departments to its operating departments.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Source: CMA; adapted
29. A segment of a business responsible for both revenues and expenses would be called:
A) a cost center.
B) an investment center.
C) a profit center.
D) residual income.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy

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Chapter 12 Segment Reporting and Decentralization
30. Devlin Company has two divisions, C and D. The overall company contribution
margin ratio is 30%, with sales in the two divisions totaling $500,000. If variable
expenses are $300,000 in Division C, and if Division C's contribution margin ratio is
25%, then sales in Division D must be:
A) $50,000
B) $100,000
C) $150,000
D) $200,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Hard
Solution:
Total company contribution margin = $500,000 × 30% = $150,000
Total company variable expenses = $500,000 − $150,000 = $350,000
Division C contribution margin ratio = (Sales − $300,000) ÷ Sales = 0.25
Sales − $300,000 = 0.25 × Sales
(0.75 × Sales) ÷ 0.75 = $300,000 ÷ 0.75
Sales = $400,000
Division D sales = Total company sales − Division C sales
= $500,000 − $400,000 = $100,000
Divisions
Sales...................................
Less variable expenses.......
Contribution margin...........
Contribution margin ratio...

12-12

Total
Company Division C Division D
$500,000
$400,000
$100,000
350,000
300,000
50,000
$150,000
$100,000
$ 50,000

0.30
0.25
0.50

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Chapter 12 Segment Reporting and Decentralization
31. Toxemia Salsa Company manufactures five flavors of salsa. Last year, Toxemia
generated net operating income of $40,000. The following information was taken from
last year's income statement segmented by flavor (brackets indicate a negative
amount):
Wimpy
Mild
Medium
Hot
Atomic
Contribution margin.. $(2,000)
$45,000 $35,000 $50,000 $162,000
Segment margin........ $(16,000) $(5,000)
$7,000 $10,000 $94,000
Segment margin less
allocated common
fixed expenses....... $(26,000) $(15,000) $(3,000)
$0 $84,000
Toxemia expects similar operating results for the upcoming year. If Toxemia wants to
maximize its profitability in the upcoming year, which flavor or flavors should
Toxemia discontinue?
A) no flavors should be discontinued
B) Wimpy

C) Wimpy and Mild
D) Wimpy, Mild, and Medium
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making; LO: 1 Level: Medium
Solution:
The segment margin is a better indication of profitability of individual products than
the segment margin less allocated common fixed expenses. The products with negative
segment margins should be discontinued to maximize profit: Wimpy and Mild.

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Chapter 12 Segment Reporting and Decentralization
32. Uchimura Corporation has two divisions: the AFE Division and the GBI Division. The
corporation's net operating income is $42,000. The AFE Division's divisional segment
margin is $15,700 and the GBI Division's divisional segment margin is $175,400.
What is the amount of the common fixed expense not traceable to the individual
divisions?
A) $149,100
B) $57,700
C) $217,400
D) $191,100
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Total
Company
Divisional segment margin..............................

$191,100
Less common fixed costs not
traceable to the individual divisions.............
X
Net operating income.......................................
$ 42,000

($15,700 + $175,400)

Common fixed costs not traceable to the individual divisions
= $191,100 − $42,000 = $149,100

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Chapter 12 Segment Reporting and Decentralization
33. Younie Corporation has two divisions: the South Division and the West Division. The
corporation's net operating income is $26,900. The South Division's divisional
segment margin is $42,800 and the West Division's divisional segment margin is
$29,900. What is the amount of the common fixed expense not traceable to the
individual divisions?
A) $56,800
B) $69,700
C) $72,700
D) $45,800
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:

Total
Company
Divisional segment margin..............................
$72,700
Less common fixed costs not
traceable to the individual divisions.............
X
Net operating income.......................................
$26,900

($42,800 + $29,900)

Common fixed costs not traceable to the individual divisions
= $72,700 − $26,900 = $45,800

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Chapter 12 Segment Reporting and Decentralization
34. Dukelow Corporation has two divisions: the Governmental Products Division and the
Export Products Division. The Governmental Products Division's divisional segment
margin is $255,000 and the Export Products Division's divisional segment margin is
$59,800. The total amount of common fixed expenses not traceable to the individual
divisions is $163,700. What is the company's net operating income?
A) $314,800
B) ($314,800)
C) $151,100
D) $478,500

Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Easy
Solution:
Total
Company
Divisional segment margin..............................
$314,800 *
Less common fixed costs not
traceable to the individual divisions.............
163,700
Net operating income.......................................
$151,100
*$255,000 + $59,800 = $314,800

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Chapter 12 Segment Reporting and Decentralization
35. Miscavage Corporation has two divisions: the Beta Division and the Alpha Division.
The Beta Division has sales of $580,000, variable expenses of $301,600, and traceable
fixed expenses of $186,500. The Alpha Division has sales of $510,000, variable
expenses of $178,500, and traceable fixed expenses of $222,100. The total amount of
common fixed expenses not traceable to the individual divisions is $235,500. What is
the company's net operating income?
A) $374,400
B) $201,300
C) $609,900
D) ($34,200)

Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Easy
Solution:

Sales...............................................
Less: variable expenses..................
Contribution margin.......................
Less: traceable fixed expenses.......
Divisional segment margin............
Less common fixed expenses.........
Net operating income.....................

Divisions
Total
Alpha
Beta
Company Division
Division
$1,090,000 $510,000
$580,000
480,100 178,500
301,600
609,900 331,500
278,400
408,600 222,100
186,500
201,300 $109,400
$91,900
235,500
($34,200)

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Chapter 12 Segment Reporting and Decentralization
36. J Corporation has two divisions. Division A has a contribution margin of $79,300 and
Division B has a contribution margin of $126,200. If total traceable fixed costs are
$72,400 and total common fixed costs are $34,900, what is J Corporation's net
operating income?
A) $168,000
B) $170,600
C) $133,100
D) $98,200
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting; Measurement LO: 1 Level: Easy
Solution:
Contribution margin.......................
Less: traceable fixed expenses.......
Divisional segment margin............
Less common fixed expenses.........
Net operating income.....................

Total Company
$205,500 *
72,400
133,100
34,900
$ 98,200

*$79,300 + $126,200 = $205,500
37. Kop Corporation has provided the following data:
Return on investment (ROI).................
15%
Sales..................................................... $120,000
Average operating assets...................... $60,000
Minimum required rate of return.........
12%
Margin on sales....................................
7.5%
Kop Corporation's residual income is:
A) $1,800
B) $5,400
C) $2,700
D) $3,600
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2; 3 Level: Medium

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Chapter 12 Segment Reporting and Decentralization
Solution:
Net operating income = Sales × Margin on sales = $120,000 × 7.5% = $9,000
Residual income = Net operating income − (Average operating assets × Minimum
required rate of return) = $9,000 − ($60,000 × 12%) = $9,000 − $7,200 = $1,800
38. Spar Company has calculated the following ratios for one of its investment centers:

Margin.................... 25%
Turnover................. 0.5 times
What is Spar's return on investment for this investment center?
A) 50.0%
B) 12.5%
C) 15.0%
D) 25.0%
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy Source: CPA; adapted
Solution:
Return on investment = Margin × Turnover = 25% × 0.5 times = 12.5%
39. Mike Corporation uses residual income to evaluate the performance of its divisions.
The company's minimum required rate of return is 14%. In January, the Commercial
Products Division had average operating assets of $970,000 and net operating income
of $143,700. What was the Commercial Products Division's residual income in
January?
A) $7,900
B) -$20,118
C) $20,118
D) -$7,900
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Residual income = Net operating income − (Average operating assets × Minimum
required rate of return) = $143,700 − ($970,000 × 14%) = $143,700 − $135,800 =
$7,900

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Chapter 12 Segment Reporting and Decentralization
40. In November, the Universal Solutions Division of Keaffaber Corporation had average
operating assets of $480,000 and net operating income of $46,200. The company uses
residual income, with a minimum required rate of return of 11%, to evaluate the
performance of its divisions. What was the Universal Solutions Division's residual
income in November?
A) -$6,600
B) $5,082
C) $6,600
D) -$5,082
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Residual income = Net operating income − (Average operating assets × Minimum
required rate of return) = $46,200 − ($480,000 × 11%) = $46,200 − $52,800 = -$6,600
41. If operating income is $60,000, average operating assets are $240,000, and the
minimum required rate of return is 20%, what is the residual income?
A) 40%
B) 25%
C) $12,000
D) $48,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Residual income = Net operating income − (Average operating assets × Minimum
required rate of return) = $60,000 − ($240,000 × 20%) = $60,000 − $48,000 = $12,000

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Chapter 12 Segment Reporting and Decentralization
42. Division A makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Selling price to outside customers.............
$40
Variable cost per unit.................................
$30
Total fixed costs......................................... $10,000
Capacity in units........................................ 20,000
Division B of the same company would like to use the part manufactured by Division
A in one of its products. Division B currently purchases a similar part made by an
outside company for $38 per unit and would substitute the part made by Division A.
Division B requires 5,000 units of the part each period. Division A is already selling
all of the units it can produce to outside customers. If Division A sells to Division B
rather than to outside customers, the variable cost per unit would be $1 lower. What is
the lowest acceptable transfer price from the standpoint of the selling division?
A) $40
B) $39
C) $38
D) $37
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making; Reporting Appendix: 12A LO: 4

Level: Hard

Solution:

Transfer price ≥ Variable cost per unit + (Total contribution margin on lost sales ÷
Number of units transferred) = ($30 − $1) + [($40 − $30) × 5,000] ÷ 5,000 = $29 +
$10 = $39

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Chapter 12 Segment Reporting and Decentralization
43. Product A, which is produced by the Parts Division of BYP Corporation, sells for
$14.25 on the outside market. The costs to make Product A as recorded by the
company's cost accounting system are:
Direct materials..........................................
Direct labor................................................
Variable manufacturing overhead..............
Fixed manufacturing overhead..................

$7.25
$2.25
$1.50
$2.50

The Assembly Division of BYP Corporation requires a part much like Product A to
make one of its products. The Assembly Division can buy this part from an outside
supplier for $14.15. However, the Assembly Division could use Product A instead of
this part purchased from an outside supplier. What is the most the Assembly Division
would be willing to pay the Parts Division for Product A?
A) $13.50
B) $14.25

C) $14.15
D) $14.00
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making; Reporting Appendix: 12A LO: 4

Level: Easy

Solution:
Transfer price ≤ Cost of buying from outside supplier = $14.15

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Chapter 12 Segment Reporting and Decentralization
44. Macumber Corporation has two operating divisions-an Atlantic Division and a Pacific
Division. The company's Logistics Department services both divisions. The variable
costs of the Logistics Department are budgeted at $36 per shipment. The Logistics
Department's fixed costs are budgeted at $234,000 for the year. The fixed costs of the
Logistics Department are determined based on peak-period demand.
Percentage of Peak
Period Capacity Required
Atlantic Division..........
30%
Pacific Division............
70%

Actual
Shipments

1,100
3,400

How much Logistics Department cost should be charged to the Altlantic Division at
the end of the year for performance evaluation purposes?
A) $198,000
B) $109,800
C) $118,800
D) $96,800
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
Solution:
Labor department cost charged to Atlantic Division
= (1,100 shipments × $36 per shipment) + ($234,000 × 30%)
= $39,600 + $70,200 = $109,800

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Chapter 12 Segment Reporting and Decentralization
45. Erholm Corporation has two operating divisions-an Atlantic Division and a Pacific
Division. The company's Logistics Department services both divisions. The variable
costs of the Logistics Department are budgeted at $31 per shipment. The Logistics
Department's fixed costs are budgeted at $411,800 for the year. The fixed costs of the
Logistics Department are determined based on peak-period demand.

Atlantic Division................
Pacific Division..................

Percentage of Peak Period
Capacity Required
35%
65%

Budgeted
Shipments
1,900
5,200

At the end of the year, actual Logistics Department variable costs totaled $290,700
and fixed costs totaled $431,950. The Atlantic Division had a total of 3,900 shipments
and the Pacific Division had a total of 5,100 shipments for the year. How much
Logistics Department cost should be charged to the Pacific Division at the END of the
year for performance evaluation purposes?
A) $391,453
B) $425,770
C) $445,498
D) $409,502
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Solution:
Logistics department cost charged to Pacific Division
= (5,100 shipments × $31 per shipment) + ($411,800 × 65%)
= $158,100 + $267,670 = $425,770

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 12 Segment Reporting and Decentralization
46. Gretter Corporation has two operating divisions-an Atlantic Division and a Pacific
Division. The company's Logistics Department services both divisions. The variable
costs of the Logistics Department are budgeted at $36 per shipment. The Logistics
Department's fixed costs are budgeted at $399,600 for the year. The fixed costs of the
Logistics Department are determined based on peak-period demand.

Atlantic Division..........
Pacific Division............

Percentage of Peak Period
Capacity Required
25%
75%

Budgeted
Shipments
1,600
5,800

At the end of the year, actual Logistics Department variable costs totaled $305,040
and fixed costs totaled $418,680. The Atlantic Division had a total of 2,600 shipments
and the Pacific Division had a total of 5,600 shipments for the year. For performance
evaluation purposes, how much actual Logistics Department cost should NOT be
charged to the operating divisions at the END of the year?
A) $28,920
B) $9,840
C) $19,080

D) $0
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Solution:
Actual Logistics Department cost incurred = $305,040 + $418,680 = $723,720
Logistics Department charged to operating divisions
= [$36 per shipment × (2,600 shipments + 5,600 shipments)] + $399,600
= [$36 per shipment × 8,200 shipments] + $399,600
= $295,200 + $399,600 = $694,800
Actual Logistics Department cost not charged to operating divisions
= $723,720 − $694,800 = $28,920

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12-25


Chapter 12 Segment Reporting and Decentralization
47. Bockoven Corporation has two operating divisions-a Consumer Division and a
Commercial Division. The company's Customer Service Department provides services
to both divisions. The variable costs of the Customer Service Department are budgeted
at $46 per order. The Customer Service Department's fixed costs are budgeted at
$181,500 for the year. The fixed costs of the Customer Service Department are
determined based on the peak period orders.

Consumer Division............
Commercial Division.........

Percentage of Peak Period
Capacity Required

40%
60%

Actual
Orders
1,100
2,200

How much Customer Service Department cost should be charged to the Consumer
Division at the beginning of the year for performance evaluation purposes?
A) $123,200
B) $166,650
C) $111,100
D) $133,320
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
Solution:
Customer Service Department cost charged to Consumer Division
= ($46 per order × 1,100 orders) + ($181,500 × 40%)
= $50,600 + $72,600 = $123,200

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 12 Segment Reporting and Decentralization
48. Levar Corporation has two operating divisions-a Consumer Division and a
Commercial Division. The company's Order Fulfillment Department provides services
to both divisions. The variable costs of the Order Fulfillment Department are budgeted

at $73 per order. The Order Fulfillment Department's fixed costs are budgeted at
$470,400 for the year. The fixed costs of the Order Fulfillment Department are
determined based on the peak period orders.

Consumer Division............
Commercial Division.........

Percentage of Peak Period
Capacity Required
25%
75%

Budgeted
Orders
1,800
6,600

At the end of the year, actual Order Fulfillment Department variable costs totaled
$621,600 and fixed costs totaled $473,970. The Consumer Division had a total of
1,840 orders and the Commercial Division had a total of 6,560 orders for the year. For
purposes of evaluation performance, how much Order Fulfillment Department cost
should be charged to the Commercial Division at the END of the year?
A) $831,680
B) $855,588
C) $840,918
D) $846,240
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
Solution:
Order Fulfillment Department cost charged to Commercial Division

= ($73 per order × 6,560 orders) + ($470,400 × 75%)
= $478,880 + $352,800 = $831,680

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 12 Segment Reporting and Decentralization
49. Schabel Corporation has two operating divisions-a Consumer Division and a
Commercial Division. The company's Customer Service Department provides services
to both divisions. The variable costs of the Customer Service Department are budgeted
at $72 per order. The Customer Service Department's fixed costs are budgeted at
$695,400 for the year. The fixed costs of the Customer Service Department are
determined based on the peak period orders.

Consumer Division............
Commercial Division.........

Percentage of Peak Period
Capacity Required
25%
75%

Budgeted
Orders
2,600
9,600

At the end of the year, actual Customer Service Department variable costs totaled

$891,089 and fixed costs totaled $709,820. The Consumer Division had a total of
2,610 orders and the Commercial Division had a total of 9,580 orders for the year. For
performance evaluation purposes, how much actual Customer Service Department
cost should NOT be charged to the operating divisions at the END of the year?
A) $13,409
B) $0
C) $14,420
D) $27,829
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Solution:
Actual Customer Service Department cost incurred
= $891,089 + $709,820 = $1,600,909
Customer Service Department cost charged to operating divisions
= [$72 per order × (2,610 orders + 9,580 orders)] + $695,400
= [$72 per order × 12,190 orders] + $695,400
= $877,680 + $695,400 = $1,573,080
Actual Customer Service Department cost not charged to operating divisions
= $1,600,909 − $1,573,080 = $27,829

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 12 Segment Reporting and Decentralization
50. Mangiamele Corporation's Maintenance Department provides services to the
company's two operating divisions-the Paints Division and the Stains Division. The
variable costs of the Maintenance Department are budgeted based on the number of
cases produced by the operating departments. The fixed costs of the Maintenance

Department are budgeted based on the number of cases produced by the operating
departments during the peak period. Data appear below:
Maintenance Department
Budgeted variable cost........................................ $4 per case
Budgeted total fixed cost....................................
$693,000
Paints Division
Percentage of peak period capacity required......
Actual cases........................................................

30%
18,000

Stains Division
Percentage of peak period capacity required......
Actual cases........................................................

70%
59,000

For performance evaluation purposes, how much Maintenance Department cost should
be charged to the Paints Division at the end of the year?
A) $234,000
B) $500,500
C) $279,900
D) $300,300
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Solution:
Maintenance Department cost charged to Paints Division

= ($4 per case × 18,000 cases) + ($693,000 × 30%)
= $72,000 + $207,900 = $279,900

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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