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1.
Discuss the benefits from segment reporting for an organization. Evaluate segment reporting with respect to variable-costing basis against absorption-costing.
1.
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Explanation of Solution
Segment reporting is beneficial for an organization because segmental reporting focuses on the profitability of each segment. Segment reporting aids in identifying the unprofitable segments that are lost in the overall profit of the company as a whole.
Segmental reporting is better when carried out on variable basis rather than an absorption costing because variable costing does not allow a manager to increase profits by producing for inventory. Moreover, the contribution that a segment makes to earn profit can easily be identified in the variable-costing income statements. Under absorption costing, it is difficult to determine whether an unprofitable segment makes a contribution to profit or not.
2.
Determine the contribution margin, contribution margin volume, and sales mix variances.
2.
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Explanation of Solution
Contribution margin variance: Contribution margin variance reflects difference between the actual contribution margin and budgeted contribution margin. It is computed using the given formula:
Determine the contribution margin:
Contribution margin volume variance: Contribution margin volume variance reflects difference between the actual quantity sold and the budgeted quantity sold multiplied by the budgeted average unit contribution margin. It is computed using the given formula:
Determine the contribution margin volume variance:
Given, the actual units sold are 46,000 units
Working note 1: Calculate the budgeted average unit contribution margin:
Sales mix variance: The sales mix represents the part of total sales generated by each product. Sales mix variance is the summation of change in units for each product multiplied by the difference between the budgeted contribution margin and the budgeted average unit contribution margin. It is computed using the given formula:
Determine the sales mix variance for upscale lighting data:
Determine the sales mix variance for mid-range lighting data:
Determine the sales mix variance for timing device data:
Determine the sales mix variance:
3.
Describe the reasons behind the variances.
3.
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Explanation of Solution
Since, the actual contribution margin is higher than budgeted the contribution margin variance is favorable. This happened due to the change in sales mix. A higher percentage of sales were possible due to the higher contribution margin of upscale lights, and a lower percentage of sales happened due to the lower contribution margin of mid-range lights.
It is to be noted that fewer units (46,000) were sold than budgeted (50,000). Therefore, it is the sales mix change that led to the higher actual contribution margin.
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Chapter 18 Solutions
Cornerstones of Cost Management (Cornerstones Series)
- Dill Shipyards operates a dry dock on the East Coast, where it builds and repairs ships. The company's Payroll Department supports its two divisions, Naval and Private. The Naval division has contracts with the Department of Defense and the Private division works primarily with commercial shippers, specializing in tankers. The annual cost of the Payroll Department is $9.4 million. Selected data for the two divisions for the most recent year follow: Total Payroll ($000) $ 588,000 462,000 Naval Private Required: a. What is the cost charged to each division if Dill allocates Payroll Department costs based on the number of employees? b. What is the cost charged to each division if Dill allocates Payroll Department costs based on the total payroll? c. Contracts with the Defense Department are on a cost-plus fixed fee basis, meaning the price is based on the cost of repairing or building the ship, including any overhead assigned to the division. Contracts with commercial shipping companies…arrow_forwardGreiner Company makes and sells high-quality glare filters for microcomputer monitors. John Craven, controller, is responsible for preparing Greiners master budget and has assembled the following data for the coming year. The direct labor rate includes wages, all employee-related benefits, and the employers share of FICA. Labor saving machinery will be fully operational by March. Also, as of March 1, the companys union contract calls for an increase in direct labor wages that is included in the direct labor rate. Greiner expects to have 5,600 glare filters in inventory on December 31 of the current year, and has a policy of carrying 35 percent of the following month's projected sales in inventory. Information on the first four months of the coming year is as follows: Required: 1. Prepare the following monthly budgets for Greiner Company for the first quarter of the coming year. Be sure to show supporting calculations. a. Production budget in units b. Direct labor budget in hours c. Direct materials cost budget d. Sales budget 2. Calculate the total budgeted contribution margin for Greiner Company by month and in total for the first quarter of the coming year. Be sure to show supporting calculations. (CMA adapted)arrow_forwardWest Glass (WG), which manufactures specialty windows, recently hired Derek Smith as the management accountant . Direct materials and direct manufacturing labour are the two direct cost categories used by WG. Smith feels that manufacturing overhead is most closely related to material usage. Therefore, WG allocates manufacturing overhead to production based upon pounds of materials used. At the beginning of 2021, WG budgeted annual production of 200,000 windows and adopted the following standards for each window: Input Cost/window Direct materials 0.5 lb. @ $12/lb. $ 6.00 Direct manufacturing labour 1.4 hours @ $20/hour 28.00 Manufacturing overhead: Variable $6/lb. 0.5 lb.…arrow_forward
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- Don Johnson is the management accountant for Cari-Blocks (CB), which manufacturesspecialty blocks. CB uses two direct cost categories: direct materials and directmanufacturing labour. Johnson feels that manufacturing overhead is most closely related tomaterial usage. Therefore, CB allocates manufacturing overhead to production based uponpounds of materials used.At the beginning of 2021, CB budgeted annual production of 200,000 blocks and adopted thefollowing standards for each block:Direct materials 0.5 lb. @ $12/lb. $ 6.00Direct manufacturing labour 1.4 hours @ $20/hour 28.00Manufacturing overhead:Variable $6/lb. 0.5 lb. 3.00Fixed $15/lb. 0.3 lb. 4.50Standard cost per block $41.50Actual results for April 2021 were as follows:Production 24,000 blocksDirect materials purchased 12,000 lb. at $13/lb.Direct materials used 11,450 lb.Direct manufacturing labour 38,000 hours for $798000Variable manufacturing overhead $68,150Fixed manufacturing overhead $155,000 CALCULATE: .a. Direct…arrow_forwardBarfield Corporation prepares business plans and marketing analyses for start-up companies in the Cleveland area. Barfield has been very successful in recent years in providing effective service to a growing number of clients. The company provides its service from a single office building in Cleveland and is organized into two main client-service groups: one for market research and the other for financial analysis. The two groups have budgeted annual costs of $440,000 and $810,000, respectively. In addition, Barfield has a support staff that is organized into two main functions: one for clerical, facilities, and logistical support (called the CFL group) and another for computer-related support. The CFL group has budgeted annual costs of $216,000, while the annual costs of the computer group are $654,000. Tom Brady, CFO of Barfield, plans to prepare a departmental cost allocation for his four groups, and he assembles the following information: Percentage of estimated dollars of work and…arrow_forwardMacalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments-Molding and Assembly. The Molding Department employs 15 people, and the Assembly Department employs 77 people. Each person in these two departments works 1,910 hours per year. The production-related overhead costs for the Molding Department are budgeted at $197,000, and the Assembly Department costs are budgeted at $97,000. Two support departments-Engineering and General Factory-directly support the two production departments and have budgeted costs of $248,000 and $405,000, respectively. The production departments' overhead rates cannot be determined until the support departments' costs are properly allocated. The following schedule reflects the use of the Engineering Department's and General Factory Department's output by the various departments. General Factory Molding Assembly 7,600 Engineering hours Square feet 445,880 69,080 For all requirements, round…arrow_forward
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- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
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