Darmen Corporation is one of the major producers of prefabricated homes in the home building industry. The corporation c
Posted: Mon May 02, 2022 7:32 am
Darmen Corporation is one of the major producers of
prefabricated homes in the home building industry. 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, and (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 home kits using raw
materials purchased at the prevailing market prices. The seven kits
are sold to Cornish for prices ranging from $45,000 to $98,000. The
prices are set by corporate management of Darmen using prices paid
by Cornish when it buys comparable units from outside sources. The
smaller kits with the lower prices have become a large portion of
the units sold because the final home buyer is faced with prices
that are increasing more rapidly than personal income. The kits are
manufactured and assembled in a new plant just purchased by Bell
this year. The division had been located in a leased plant for the
past four years.
All kits are assembled upon receipt of an order from Cornish
Division. When the kit is completely assembled, it is loaded
immediately on a Cornish truck. Thus, Bell Division has no finished
goods inventory.
The Bell Division’s accounts and reports are prepared on an
actual cost basis. There is no budget and no product standards have
been developed. A factory overhead rate is calculated at the
beginning 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 work in process
inventories.
Bell Division’s performance report follows. This report forms
the basis of the evaluation of the division and its management by
the corporate CFO.
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
the number of employees in the division.
- The accounting costs are allocated to the division on the
basis of total costs excluding corporate charges.
- The division administration costs are included in factory
overhead.
- The finance charges include a corporate-imputed interest
charge on division assets and any divisional lease payments.
- The division investment for the ROI calculation includes
division inventory and plant and equipment at gross book value
(a) Discuss 3 reasons why performance reporting is
important.
(b) Using the annual report presented for Bell Division,
evaluate the division and its management in terms of:
i. The accounting techniques employed in the measurement
of division activities
ii. The manner of presentation
iii. The effectiveness with which it discloses
difference and similarities between years
Bell Division Performance Report for the Year Ended December 31, 2021 Increase/(Decrease) from 2020 2021 2020 AMOUNT % CHANGE Summary Data Net Income ($000 omitted) $34,222 $31,573 $2,649 8.4 Return on Investment (ROI) 37% 43% (6%) (14.0) Kits sold (units) 2,000 2,100 (100) (4.8) Production Data Kits started 2,400 1,600 800 50.0 Kits transferred to Cornish Div. 2,000 2,100 (100) (4.8) Kits in process at year-end 700 300 400 133.3 Increase (Decrease) in kits in process at year-end 400 (500) Financial Data ($000) Sales $138,000 $162,800 ($24,800) (15.2) Production costs of units sold Raw material 32,000 40,000 (8,000) (20.0) Labor 41,700 53,000 (11,300) (21.3) Factory overhead 29,000 37,000 (8,000) (21.6) Cost of units sold $102,700 $130,000 ($27,300) (21.0) Other Costs: Corporate Charges for Personnel services 228 210 18 8.6 Accounting services 425 440 (15) (3.4) Financing costs 300 525 (225) (42.9) Total other costs $953 $1.175 ($222) (18.9) Adjustments to Income Unreimbursed fire loss 0 52 (52) (100.0) Raw material losses due to improper storage 125 125 Total adjustments $125 $52 $73 (100.0) Total Costs $103,778 $131,227 ($27,449) (20.9) ol DIVISION INCOME $34,222 $31.573 $2.649 8.4 Division Investment $92,000 $73,000 $19,000 26.0 ROI 37% 43% (6%) (14.0)
prefabricated homes in the home building industry. 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, and (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 home kits using raw
materials purchased at the prevailing market prices. The seven kits
are sold to Cornish for prices ranging from $45,000 to $98,000. The
prices are set by corporate management of Darmen using prices paid
by Cornish when it buys comparable units from outside sources. The
smaller kits with the lower prices have become a large portion of
the units sold because the final home buyer is faced with prices
that are increasing more rapidly than personal income. The kits are
manufactured and assembled in a new plant just purchased by Bell
this year. The division had been located in a leased plant for the
past four years.
All kits are assembled upon receipt of an order from Cornish
Division. When the kit is completely assembled, it is loaded
immediately on a Cornish truck. Thus, Bell Division has no finished
goods inventory.
The Bell Division’s accounts and reports are prepared on an
actual cost basis. There is no budget and no product standards have
been developed. A factory overhead rate is calculated at the
beginning 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 work in process
inventories.
Bell Division’s performance report follows. This report forms
the basis of the evaluation of the division and its management by
the corporate CFO.
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
the number of employees in the division.
- The accounting costs are allocated to the division on the
basis of total costs excluding corporate charges.
- The division administration costs are included in factory
overhead.
- The finance charges include a corporate-imputed interest
charge on division assets and any divisional lease payments.
- The division investment for the ROI calculation includes
division inventory and plant and equipment at gross book value
- Darmen Corporation Is One Of The Major Producers Of Prefabricated Homes In The Home Building Industry The Corporation C 1 (86.56 KiB) Viewed 23 times
important.
(b) Using the annual report presented for Bell Division,
evaluate the division and its management in terms of:
i. The accounting techniques employed in the measurement
of division activities
ii. The manner of presentation
iii. The effectiveness with which it discloses
difference and similarities between years
Bell Division Performance Report for the Year Ended December 31, 2021 Increase/(Decrease) from 2020 2021 2020 AMOUNT % CHANGE Summary Data Net Income ($000 omitted) $34,222 $31,573 $2,649 8.4 Return on Investment (ROI) 37% 43% (6%) (14.0) Kits sold (units) 2,000 2,100 (100) (4.8) Production Data Kits started 2,400 1,600 800 50.0 Kits transferred to Cornish Div. 2,000 2,100 (100) (4.8) Kits in process at year-end 700 300 400 133.3 Increase (Decrease) in kits in process at year-end 400 (500) Financial Data ($000) Sales $138,000 $162,800 ($24,800) (15.2) Production costs of units sold Raw material 32,000 40,000 (8,000) (20.0) Labor 41,700 53,000 (11,300) (21.3) Factory overhead 29,000 37,000 (8,000) (21.6) Cost of units sold $102,700 $130,000 ($27,300) (21.0) Other Costs: Corporate Charges for Personnel services 228 210 18 8.6 Accounting services 425 440 (15) (3.4) Financing costs 300 525 (225) (42.9) Total other costs $953 $1.175 ($222) (18.9) Adjustments to Income Unreimbursed fire loss 0 52 (52) (100.0) Raw material losses due to improper storage 125 125 Total adjustments $125 $52 $73 (100.0) Total Costs $103,778 $131,227 ($27,449) (20.9) ol DIVISION INCOME $34,222 $31.573 $2.649 8.4 Division Investment $92,000 $73,000 $19,000 26.0 ROI 37% 43% (6%) (14.0)