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EA 1.

LO 9.3Assume you have been hired by Hilton Hotels and Resorts. As part of your new role in the accounting department, you have been tasked to set up a responsibility accounting structure for the company. As your first task, your supervisor has asked you to give an example of a cost center, profit center, and an investment center within the Hilton organization. Your supervisor is a little unsure of the difference between a profit center and investment center and would like you to explain the difference.

EA 2.

LO 9.3Consider the national nonprofit organization the American Red Cross. Assume you are the regional director of the organization, and you just received the quarterly financial reports. Even though the organization is a nonprofit, assume it is set up as a profit center because it is helpful for the financial reports to show both donations and expenses by each region/location. One particular report shows there is one location in your region that is extremely over budget on nearly every expense item. From a management perspective, can you think of a reason(s) when going over budget might actually be a good thing? As the regional manager, how might you respond to the overages to help the particular location in the future?

EA 3.

LO 9.3The following information is from Bluff Run Golf Courses. The company runs three courses and the July income statement for each course is shown.

Bluff Run Golf Courses, Income Statement, Month Ending July 31, 2018 for the Blue Course, Black Course, and Gold Course, respectively: Revenues: Greens fees revenue $62,500, $89,000, $42,800; Outings revenue, $?, $6,000, $28,000; Total revenue, $73,500, $95,000, $70,800; Expenses: Landscaping $7,800, $14,200, $6,400; Wages, $43,900, $?, $32,600; Repairs and maintenance, $5,600, $2,600, $4,400; Fuel, $3,100, $3,000, $1,980; Utilities, $1,800, $3,000, $1,650; Total expenses, $62,200, $79,100, $47,030; Operating income $11,300, $15,900, $?.
  1. Find the missing value for outings revenue, wages, and operating income.
  2. Comment on the financial performance of each course.
  3. Identify a limitation of analyzing the information provided.

You may want to consider using Microsoft Excel or another spreadsheet application for the numerical data. This information will be used in a subsequent question.

EA 4.

LO 9.3The following information is from Dave’s Sporting Goods. Dave’s is a Midwest sporting goods store with three regional stores. The August income statement for all stores is shown.

Dave’s Sporting Goods, Income Statement, Month Ending August 31, 2018 for Nebraska, Iowa, and Illinois, respectively: Sales, $22,000, $51,000, $36,000; Cost of goods sold, $10,000, $25,000, $19,000; Gross profit, $12,000 $26,000 $17,000; Expenses: Selling expenses, $1,000, $3,200, $2,100; Wages expense, $6,000, $9,000, $8,000; Costs allocated from corporate, $3,000, $15,000, $5,500; Total expenses, $10,000, $27,200, $15,600; Operating income (loss), $2,000, ($1,200), $1,400.
  1. Comment on the operating income results for each store.
  2. Now assume the costs allocated from corporate is an uncontrollable cost for each store. How does this change your assessment of each store?
EA 5.

LO 9.4Assume you are the department B manager for Marley’s Manufacturing. Marley’s operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation. (Hint: It may be helpful to perform a vertical analysis.)

Marley’s Manufacturing, Income Statement, Month Ending August 31, 2018; Dept A and Dept. B, respectively: Sales, $22,000, $51,000; Cost of goods sold, $10,560, $26,520; Gross profit, $11.440, $24,480; Expenses; Utility expenses, $1,000, $3,200; Wages expense, $5,500, $10,200; Costs allocated from corporate, $2,200, $15,000; Total expenses, $8,700, $28,400; Operating income/(loss) $, $?, $?; Operating income/(loss) %, ?, ?.
EA 6.

LO 9.4As manager of department B in Marley’s Manufacturing, based on the costs you identified in the previous exercise for further research, how does this impact the financial performance of your department, and what might be some questions you want to ask or solutions you might propose to Marley’s management?

EA 7.

LO 9.4Based on your research of the market in the previous exercises, you have determined the market price for the items your department purchase is 15% below what you are being charged by department A of Marley’s Manufacturing. How would you view this as a manager? What steps could you take to solve this discrepancy? What alternatives would you consider, assuming you had control over purchasing decisions?

EA 8.

LO 9.4Using the information in the previous exercises about Marley's Manufacturing, determine the operating income for department B, assuming department A “sold” department B 1,000 units during the month and department A reduces the selling price to the market price.

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