Discuss 3 reasons why performance reporting is important. D Corporation is one of the major producers of pre-fabricated houses in the home buildingindustry. The corporation consists of two divisions:1. Bell Division, which acquires the raw materials to manufacture the basic house componentsand assembles them into kits.2. Cornish Division, which takes the kits and constructs the homes for final home buyers.The corporation is decentralized and the management of each division is measured by its income andreturn on investment.Bell Division assembles seven separate house kits using raw materials purchased at theprevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 toUS$98,000. The prices are set by corporate management of D Corporation using prices paid by Cornishwhen it buys comparable units from outside sources. The smaller kits with the lower prices havebecome a larger portion of the units sold because the final house buyer is face with prices that areincreasing more rapidly than personal income. The kits are manufactured and assembled in a new plantpurchased by Bell this year. The division had been located in a leased plant for the past fouryears.All kits are assembled upon receipt of an order from the Cornish Division. When the kit iscompletely assembled it is immediately taken by the Cornish Division for final construction. Thus, BellDivision has no finished goods inventory.The Bell Division's accounts and reports are prepared on an actual-cost basis. There is no budgetand standards have not been developed for each product. A factory overhead rate is calculated at thebeginning of each year. The rate is designed to charge all overhead to the product each year. Any under-or over- applied overhead is allocated to the cost of goods sold account and the WIP inventories.Bell Division's annual report is presented below. This report forms the basis of the evaluation ofthe division and its management by the corporation management.Additional information regarding corporate and division practices is as follows:The corporation office does all the personnel and accounting work for each division.The corporate personnel costs are allocated on the basis of number of employees in thedivision.The accounting costs are allocated to the division on the basis of total costs excludingcorporate charges.The division administration costs are included in factory overhead.The finance charges include a corporate-imputed interest charge on division assets anddivisional lease payments.anyThe division investment for the ROI calculation includes division inventory and plant andequipment at gross book value. Bell DivisionPerformance Report for the Year Ended December 31, 2020Increase/(Decrease) from 2019% CHANGE20202019AMOUNTSummary DataNet Income ($000 omitted)Return on Investment (ROI)Kits sold (units)$34,222$31,573$2,6498.4(6%)(14.0)(4.8)37%43%2,0002,100(100)Production DataKits started2,4001,60080050.0Kits transferred to Cornish Div.2,0002,100(100)(4.8)Kits in process at year-end700300400133.3Increase (Decrease) in kits in(500)process at year-endFinancial Data ($000)400Sales$138,000$162,800($24,800)(15.2)©The University of the West IndiesCourse Code: ACCT 3039211.../page 3Production costs of units sold40,000(8,000)(11,300)(8,000)($27,300)(20.0)(21.3)(21.6)(21.0)Raw material32,000Labor41,70053,000Factory overhead29,00037,000Cost of units sold$102,700$130,000Other Costs: Corporate Charges forPersonnel services228210188.6Accounting servicesFinancing costs(15)(225($222)425(3.4)(42.9)(18.9)440300525Total other costs$953$1,175Adjustments to IncomeUnreimbursed fire loss52(52)(100.0)Raw material losses due to125125impropoer storageTotal adjustments$125$52$73(100.0)(20.9)Total Costs$103,778$131,227($27,449)DIVISION INCOME$34,222$31,573$2,6498.4Division Investment$92,000$73,000$19,00026.0ROI37%43%(6%)(14.0)

Performance reporting is the report of the firm which will shows the performance of the firm during…

Answered: Discuss 3 reasons why performance…

Business

Accounting

Discuss 3 reasons why performance reporting is important.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 30P

See similar textbooks

Similar questions

D Corporation is one of the major producers of prefabricated houses in the home buildingindustry. The corporation consists of two divisions:1. Bell Division, which acquires the raw materials to manufacture the basic house components and assembles them into kits.2. Cornish Division, which takes the kits and constructs the homes for final home buyers.The corporation is decentralized and the management of each division is measured by its income and return on investment. Bell Division assembles seven separate house kits using raw materials purchased at theprevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 to US$98,000. The prices are set by the corporate management of D Corporation using prices paid by Cornish when it buys comparable units from outside sources. The smaller kits with the lower prices have become a larger portion of the units sold because the final house buyer is faced with prices that are increasing more rapidly than personal…
A manufacturing company, Mani Co, has two divisions: Division EX and Division YX. Both divisions make a single standardised product. Division EX makes component TEX, which is supplied to both Division YX and external customers. Division YX makes product YAS using one unit of component TEX and other materials. It then sells the completed product YAS to external customers. To date, Division YX has always bought component TEX from Division EX. The following information is available: Division EX Division YX $ $ Selling price 40 96 Direct materials: Component TEX (40) Direct materials (12) (17) Direct labour (6) (9) Variable overheads (2) (3) Selling and distribution costs (4) (1) Contribution per unit before fixed costs 16 26 Annual fixed costs $500,000 $200,000 Annual external demand (units) 160,000 120,000 Capacity of plant 300,000 130,000 Division EX charges the same price for…
Beta Group specialises in the manufacture and sale of motorcycles. Each motorcycle consists of a main unit plus a set of motorcycle fittings. The company is split into two divisions, A and B. Division A manufactures the motorcycle and Division B manufactures sets of motorcycle fittings. Currently, all of Division A’s sales are made externally. Division B, however, sells to Division A as well as to external customers. Both of the divisions are profit centres. The following data are available for both divisions: Division A Current selling price for each motorcycle £900 Costs per motorcycle: Fittings from Division B £150 Other materials from external suppliers £400 Labour costs £90 Annual fixed overheads £14,880,000 Annual production and sales of motorcycles (units) 80,000 Maximum annual market demand for motorcycles (units) 80,000…
Gutierrez Company makes various electronic products. The company is divided into a number of autonomous divisions that can either sell to internal units or sell externally. All divisions are located in buildings on the same piece of property. The Board Division has offered the Chip Division $21 per unit to supply it with chips for 40,000 boards. It has been purchasing these chips for $22 per unit from outside suppliers. The Chip Division receives $22.50 per unit for sales made to outside customers on this type of chip. The variable cost of chips sold externally by the Chip Division is $14.50. It estimates that it will save $4.50 per chip of selling expenses on units sold internally to the Board Division. The Chip Division has no excess capacity. (a) Calculate the minimum transfer price that the Chip Division should accept. (Round answers to 0 decimal places. e.g. 10.) Minimum transfer price $ Should Chip Division accept the offer? (b) Suppose that the Chip Division decides to reject…
Gutierrez Company makes various electronic products. The company is divided into a number of autonomous divisions that can either sell to internal units or sell externally. All divisions are located in buildings on the same piece of property. The Board Division has offered the Chip Division $21 per unit to supply it with chips for 40,000 boards. It has been purchasing these chips for $22 per unit from outside suppliers. The Chip Division receives $22.50 per unit for sales made to outside customers on this type of chip. The variable cost of chips sold externally by the Chip Division is $14.50. It estimates that it will save $4.50 per chip of selling expenses on units sold internally to the Board Division. The Chip Division has no excess capacity. (a) Calculate the minimum transfer price that the Chip Division should accept. (Round answers to O decimal places. e.g. 10.) Minimum transfer price $ Should Chip Division accept the offer? (b) Yes Suppose that the Chip Division decides to…
Bath Bath Co is a company specialising in the manufacture and sale of baths. Each bath consists of a main unit plus a set of bath fittings. The company is split into two divisions, A and B. Division B manufactures the bath and Division A manufactures sets of bath fittings, which are both sold externally and transferred to Division B. Both of the divisions are treated as profit centres. The following data is available for both divisions: Division A Division B External selling price of items £80 £450 Transfer price £75 Internal standard variable costs per item £20 £245 Annual fixed costs £4,400,000 £7,440,000 Annual production capacity 200,000 80,000 Maximum external demand 180,000 80,000 The transfer price charged by Division A to Division B was negotiated some years ago between the previous divisional managers, who have both now been replaced by new managers. Head Office only allows Division B to purchase its fittings…
Alcoa Inc. is the world’s largest producer of aluminum products. One product that Alcoa manufactures is aluminum sheet products for the aerospace industry. The entire output of the Smelting Department is transferred to the Rolling Department. Part of the fully processedgoods from the Rolling Department are sold as rolled sheet, and the remainder of the goods are transferred to the Converting Department for further processing into sheared sheet. Prepare a diagram using T accounts showing the flow of costs from the processing department accounts into the finished goods accounts and then into the cost of goods sold account. The relevant accounts are as follows:Attachment
Swifty Company makes various electronic products. The company is divided into a number of autonomous divisions that can either sell to internal units or sell externally. All divisions are located in buildings on the same piece of property. The Board Division has offered the Chip Division $22 per unit to supply it with chips for 45,000 boards. It has been purchasing these chips for $23 per unit from outside suppliers. The Chip Division receives $25.40 per unit for sales made to outside customers on this type of chip. The variable cost of chips sold externally by the Chip Division is $14.40. It estimates that it will save $6.40 per chip of selling expenses on units sold internally to the Board Division. The Chip Division has no excess capacity. (a) Calculate the minimum transfer price that the Chip Division should accept. (Round answers to 0 decimal places. e.g. 10.) Minimum transfer price $ Should Chip Division accept the offer? 19 (b) Suppose that the Chip Division decides to reject…
D Incorporated operates three divisions in their company. Division 1 manufactures Product X, Division 2 manufactures Product Y while Division 3 manufactures Product Z. Each Unit of Product Y requires two units of Product X while each unit of Product Z requires 3 units of Product Y. Costs related to these products are as follows: Product X Product Y Product Z Selling Price 15 per unit 75 per unit 500 per unit Direct Materials 4 per unit 20 per unit 180 per unit Direct Labor 3 per unit 25 per unit 100 per unit Variable Factor Overhead 2 per unit 10 per unit 50 per unit Fixed Overhead (at normal capacity) 1 per unit 5 per unit 30 per unit Variable Selling and Admin. Expense 0.50 per unit 2 per unit 10 per unit Fixed Selling and Admin Expense 50,000 annually 50,000 annually 50,000 annually Annual Production and Sales 200,000 units 25,000 units 1,000 units Normal Capacity 275,000 units…
TAC Industries, Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to government, however, are determined on a cost plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost. Tandy Lane is the cost accountant for the Equipment Division of TAC Industries, Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division's job cost sheets, she realized that she could increase the division's income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order cost sheets of government customers. She believed this would create a "win-win" situation for the division by (1) reducing the cost of corporate jobs, and…
Sutton Construction Inc. is a privately held, family-founded corporation that builds single- and multiple-unit housing. Most projects Sutton Construction undertakes involve the construction of multiple units. Sutton Construction has adopted a job-order costing system for determining the cost of each unit. The costing system is fully computerized. Each project's costs are divided into the following five categories : 1. General conditions, including construction site utilities, project insurance permits and licenses, architect's fees, decorating, field office salaries, and cleanup costs. 2. Hard costs, such as subcontractors, direct materials, and direct labor. 3. Finance costs, including title and recording fees, inspection fees, and taxes and discounts on mortgages. 4. Land costs, which refer to the purchase price of the construction site. 5. Marketing costs, such as advertising, sales commissions, and appraisal fees. Recently, Sutton Construction…
The Riverbed Brokerage firm is organized into two major sales divisions: institutional clients and retail clients. The firm also has two support departments: research and administration. The research department’s costs are allocated to the other departments based on a log of hours spent on tasks for each user. The administration department’s costs are allocated based on the number of employees in each department. Records are available for last period as follows: Support departments Operating departments Research Administration Institutional RetailPayroll costs $ 338,400 $ 289,700 $ 366,600 $ 585,200Other costs $ 231,370 $ 163,800 $ 112,830 $ 238,870Research hours 100 200 500 300Number of employees 7 10…