29 Jun Question Chapter ; 12Performance Analysis and Decision
Question
Chapter ; 12Performance Analysis and Decision Making
Complete Problem 12-18. Submit your responses as an Excel spreadsheet. A template is provided on the textbook website. Go to the textbook website, choose “Chapter 12” from the dropdown menu on the left, click on “Excel Templates,” “Chapter 12 Excel Templates.” Save the file to your desktop using the following naming convention:
Add a tab to your spreadsheet for Problem 12-18 and label it Exercise 11-7. Prepare and submit your responses as that tab in the Excel spreadsheet. Proper formatting and professional presentation are expected.
ll applicable problems are available with McGraw-Hill’s Connect™ Accounting .
PROBLEM 12–18 Dropping or Retaining a Tour [LO2]
Blueline Tours, Inc., operates tours throughout the United States. A study has indicated that some of the tours are not profitable, and consideration is being given to dropping these tours to improve the company’s overall operating performance.
One such tour is a two-day Historic Mansions bus tour conducted in the southern states. An income statement from a typical Historic Mansions tour is given below:
Ticket revenue (100 seat capacity × 40% occupancy ×
$75 ticket price per person) . . . . . . . . . . . . . . . . . . . . . . . . $3,000 100%
Variable expenses ($22.50 per person) . . . . . . . . . . . . . . . . . 900 30
Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100 70%
Tour expenses:
Tour promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600
Salary of bus driver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Fee, tour guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
Fuel for bus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Depreciation of bus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
Liability insurance, bus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Overnight parking fee, bus . . . . . . . . . . . . . . . . . . . . . . . . . 50
Room and meals, bus driver and tour guide . . . . . . . . . . . 175
Bus maintenance and preparation . . . . . . . . . . . . . . . . . . . 300
Total tour expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,950
Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (850)
. The following additional information is available about the tour:
a. Bus drivers are paid fixed annual salaries; tour guides are paid for each tour conducted.
b. The “Bus maintenance and preparation” cost on the previous page is an allocation of the salaries of mechanics and other service personnel who are responsible for keeping the company’s fleet of buses in good operating condition.
c. Depreciation of buses is due to obsolescence. Depreciation due to wear and tear is negligible.
d. Liability insurance premiums are based on the number of buses in the company’s fleet.
e. Dropping the Historic Mansions bus tour would not allow Blueline Tours to reduce the number of buses in its fleet, the number of bus drivers on the payroll, or the size of the maintenance and preparation staff.
Required:
1. Prepare an analysis showing what the impact will be on the company’s profits if this tour is discontinued.
2. The company’s tour director has been criticized because only about 50% of the seats on Blueline’s tours are being filled as compared to an industry average of 60%. The tour director has explained that Blueline’s average seat occupancy could be improved considerably by eliminating about 10% of its tours, but that doing so would reduce profits. Explain how this could happen.
and the second question is
All applicable cases are available with McGraw-Hill’s Connect™ Accounting .
CASE 11A–7 Transfer Pricing; Divisional Performance [LO5]
Stanco, Inc., is a decentralized organization with five divisions. The company’s Electronics Division produces a variety of electronics items, including an XL5 circuit board. The division (which is operating at capacity) sells the XL5 circuit board to regular customers for $12.50 each. The circuit boards have a variable production cost of $8.25 each.
The company’s Clock Division has asked the Electronics Division to supply it with a large
quantity of XL5 circuit boards for only $9 each. The Clock Division, which is operating at only 60% of capacity, will put the circuit boards into a timing device that it will produce and sell to a large oven manufacturer. The cost of the timing device being manufactured by the Clock Division follows:
Performance Analysis and Decision Making
XL5 circuit board (desired cost) . . . . . . . . . . . . . . . . . $ 9.00
Other purchased parts (from outside vendors) . . . . . 30.00
Other variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . 20.75
Fixed overhead and administrative costs . . . . . . . . . . 10.00
Total cost per timing device . . . . . . . . . . . . . . . . . . . . $69.75
The manager of the Clock Division feels that she can’t quote a price greater than $70 per timing
device to the oven manufacturer if her division is to get the job. As shown above, in order to keep the price at $70 or less, she can’t pay more than $9 per unit to the Electronics Division for the XL5 circuit boards. Although the $9 price for the XL5 circuit boards represents a substantial discount from the normal $12.50 price, she feels that the price concession is necessary for her division to get the oven manufacturer contract and thereby keep its core of highly trained people.
The company uses return on investment (ROI) to measure divisional performance.
Required:
1. Assume that you are the manager of the Electronics Division. Would you recommend that your division supply the XL5 circuit boards to the Clock Division for $9 each as requested?
Why or why not? Show all computations.
2. Would it be profitable for the company as a whole for the Electronics Division to supply the
Clock Division with the circuit boards for $9 each? Explain your answer.
3. In principle, should it be possible for the two managers to agree to a transfer price in this particular situation? If so, within what range would that transfer price lie?
4. Discuss the organizational and manager behavior problems, if any, inherent in this situation.
What would you advise the company’s president to do in this situation?
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.