EX24-6.Harris Corporation, a manufacturer of electronics and communications systems, uses a service department charge system to charge profit centers with Computing and Communications Services (CCS) service department costs. The following table identi- fies an abbreviated list of service categories and activity bases used by the CCS depart- ment.The table also includes some assumed cost and activity base quantity information for each service for April. CCS Service Assumed Activity Category Activity Base Assumed Cost Base Quantity Help desk Number of calls $88,400 2,600 Network center Number of devices monitored 609,375 9,750 Electronic mail Number of user accounts 67,080 6,450 Local voice support Number of phone extensions 152,720 9,200 One of the profit centers for Harris Corporation is the Communication Systems (COMM) sector.Assume the following information for the COMM sector: • The sector has 3,000employees,of whom 40% are office employees. • All the office employees have a phone,and 75% of them have a computer on the network. • Ninety-five percent of the employees with a computer also have an e-mail account. • The average number of help desk calls for April was 1.0call per individual with a computer. • There are 250additional printers, servers, and peripherals on the network beyond the personal computers. a. Determine the service charge rate for the four CCS service categories for April. b. Determine the charges to the COMM sector for the four CCS service categories for April.

a.Help desk: = $34 per call

Network center: = $62.50 per device monitored

Electronic mail: = $10.40 per e-mail account

Local voice support: = $16.60 per phone extension

b.April charges to the COMM sector:

Help desk charge: (3,000 employees × 40% × 75% × 1.0) × $34/call = $30,600

Network center charge: [(3,000 employees × 40% × 75%) + 250] × $62.50/device = $71,875

Electronic mail: (3,000 employees × 40% × 75% × 95%) × $10.40/e-mail account = $8,892

Local voice support: (3,000 employees × 40%) × $16.60/phone extension = $19,920

EX24-13. The condensed income statement for the International Division of King Industries Inc. is as follows (assuming no service department charges): Sales $1,200,000 Cost of goods sold 600,000 ______Gross profit $ 600,000 Administrative expenses 300,000 ______Income from operations $ 300,000 ______The manager of the International Division is considering ways to increase the rate of return on investment. a. Using the DuPont formula for rate of return on investment,determine the profit margin, investment turnover, and rate of return on investment of the International Division, assuming that $2,000,000of assets have been invested in the International Division. b. If expenses could be reduced by $60,000without decreasing sales,what would be the impact on the profit margin,investment turnover,and rate of return on investment for the International Division?

a.=Profit Margin × Investment Turnover

= ×

ROI= ×

ROI=25% × 0.6

ROI=15%

b.The profit margin would increase from 25% to 30%, the investment turnover would remain unchanged, and the rate of return on investment would increase from 15% to 18%, as shown below.

=Profit Margin × Investment Turnover

= ×

ROI= ×

ROI=30% × 0.6

ROI=18%

PR24-3A.Sunshine Baking Company is a diversified food products company with three operat- ing divisions organized as investment centers.Condensed data taken from the records of the three divisions for the year ended June 30,2010,are as follows: Retail Snack Cake Bakeries Bread Division Division Division Sales $ 8,100,000 $ 8,700,000 $7,800,000 Cost of goods sold 4,980,000 5,400,000 4,600,000 Operating expenses 1,662,000 1,995,000 1,484,000 Invested assets 10,800,000 10,875,000 6,000,000 The management of Sunshine Baking Company is evaluating each division as a basis for planning a future expansion of operations. Instructions 1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges. 2. Using the DuPont formula for rate of return on investment,compute the profit mar- gin,investment turnover,and rate of return on investment for each division. 3. If available funds permit the expansion of operations of only one division, which of the divisions would you recommend for expansion,based on parts (1) and (2)? Explain.

1.

SUNSHINE BAKING COMPANY

Divisional Income Statements

For the Year Ended June 30, 2010

SnackRetail

BreadCake Bakeries

DivisionDivisionDivision

Sales...... $8,100,000$8,700,000$7,800,000

Cost of goods sold...... 4,980,0005,400,0004,600,000

Gross profit...... $3,120,000$3,300,000$3,200,000

Operating expenses...... 1,662,0001,995,0001,484,000

Income from operations...... $1,458,000$1,305,000$1,716,000

2. = Profit Margin × Investment Turnover

= ×

Bread Division:ROI= ×

ROI= 18.0% × 0.75

ROI= 13.5%

Snack Cake Division:ROI= ×

ROI= 15.0% × 0.80

ROI= 12.0%

Retail Bakeries Division:ROI= ×

ROI= 22.0% × 1.3

ROI= 28.6%

3.Per dollar of invested assets, the Retail Bakeries Division is the most profitable of the three divisions. Assuming that the rates of return on investments do not change in the future, an expansion of the Retail Bakeries Division will return 28.6 cents (28.6%) on each dollar of invested assets, while the Bread and Snack Cake divisions will return only 13.5 cents (13.5%) and 12.0 cents (12.0%), respectively. Thus, when faced with limited funds for expansion, management should consider an expansion of the Retail Bakeries Division first.