Question

Lanier Company manufactures expensive watch cases sold as souvenirs. Three of its sales departments are Retail Sales, Wholesale Sales, and Outlet Sales. The Retail Sales Department is a profit center. The Wholesale Sales Department is a cost center. Its managers merely take orders from customers who purchase through the company’s wholesale catalog. The Outlet Sales Department is an investment center because each manager is given full responsibility for an outlet store location. The manager can hire and discharge employees, purchase, maintain, and sell equipment, and in general is fairly independent of company control.

Mary Gammel is a manager in the Retail Sales Department. Stephen Flott manages the Wholesale Sales Department. Jose Gomez manages the Golden Gate Club outlet store in San Francisco. The following are the budget responsibility reports for each of the three departments.

Budget
			Retail Sales			Wholesale Sales			Outlet Sales
Sales			$   750,000			$   400,000			$   200,000
Variable costs
	Cost of goods sold		150,000			100,000			25,000
	Advertising		100,000			30,000			5,000
	Sales salaries		75,000			15,000			3,000
	Printing		10,000			20,000			5,000
	Travel		20,000			30,000			2,000
Fixed costs
	Rent		50,000			30,000			10,000
	Insurance		5,000			2,000			1,000
	Depreciation		75,000			100,000			40,000
Investment in assets			1,000,000			1,200,000			800,000

Actual Results
			Retail Sales			Wholesale Sales			Outlet Sales
Sales			$   750,000			$   400,000			$   200,000
Variable costs
	Cost of goods sold		192,000			122,000			26,500
	Advertising		100,000			30,000			5,000
	Sales salaries		75,000			15,000			3,000
	Printing		10,000			20,000			5,000
	Travel		14,000			21,000			1,500
Fixed costs
	Rent		40,000			50,000			12,300
	Insurance		5,000			2,000			1,000
	Depreciation		80,000			90,000			56,000
Investment in assets			1,000,000			1,200,000			800,000

A. In 100-150 words, Determine which of the items should be included in the responsibility report for each of the three managers.

B. In 100-150 words, Compare the budgeted measures with the actual results. Decide which results should be called to the attention of each manager.

Answer 1

Responsibilty report
	Retail Sales				Wholesale Sales				Outlet Sales
	Budget	Actual	Varaince		Budget	Actual	Varaince		Budget	Actual	Varaince
Sales	$750,000	$750,000	$0		400000	$400,000	$0		200000	$200,000	$0
Variable costs
Cost of goods sold	150,000	192,000	42,000	U	100,000	122,000	22,000	U	25,000	26,500	1,500	U
Advertising	100,000	100,000	0		30,000	30,000	0		5,000	5,000	0
Sales salaries	75,000	75,000	0		15,000	15,000	0		3,000	3,000	0
Printing	10,000	10,000	0		20,000	20,000	0		5,000	5,000	0
Travel	20,000	14,000	6,000	F	30,000	21,000	9,000	F	2,000	1,500	500	F
Total variable cost	355,000	391,000			195,000	208,000			40,000	41,000
Segment Contribution margin	$395,000	$359,000	$36,000	U	$205,000	$192,000	$13,000	U	$160,000	$159,000	$1,000	U
If we see the above variance report the following items should be included which are in control of the managers. So we will include
variable cost in the responsibility report. The fixed cost is uncontrollable hence wont be reported.
When we see the total variance report we could see that cost of good sold has been more in actual than budgeted which is an area of concern.The managers should look
into the cost related with direct labor, direct material, variable manufacturing cost and pont the reason why COGS is more
than Budgeted and steps should be taken to control it so in future this variance can be reduced.
Travel cost variance is favorable which means that manager controlled the cost more than what was budgeted.
ans b
Varaince report
	Retail Sales				Wholesale Sales				Outlet Sales
	Budget	Actual	Varaince		Budget	Actual	Varaince		Budget	Actual	Varaince
Sales	$750,000	$750,000	$0		400000	$400,000	$0		200000	$200,000	$0
Variable costs
Cost of goods sold	150,000	192,000	42,000	U	100,000	122,000	22,000	U	25,000	26,500	1,500	U
Advertising	100,000	100,000	0		30,000	30,000	0		5,000	5,000	0
Sales salaries	75,000	75,000	0		15,000	15,000	0		3,000	3,000	0
Printing	10,000	10,000	0		20,000	20,000	0		5,000	5,000	0
Travel	20,000	14,000	6,000	F	30,000	21,000	9,000	F	2,000	1,500	500	F
Fixed cost
Rent	50,000	40,000	10,000	F	30,000	50,000	20,000	U	10,000	12,300	2,300	U
Insurance	5,000	5,000	0		2,000	2,000	0		1,000	1,000	0
Depreciation	75,000	80,000	5,000	U	100,000	90,000	10,000	F	40,000	56,000	16,000	U
Investment in assets	1,000,000	1,000,000			1,200,000	1,200,000			800,000	800,000
The variance report compares budget vs actual. So we could see that cost of good sold is unfavorable which is area of concern. The company should
work on it. Than there is favorable travel expense which shows that company was able to control the cost well. The Rent expenses is unfavorable for
wholesale and outlet sales so it should be seen that what are the reasons for this to happen. For retail sales it is favorable which shows that the management
was able to take premises at less price. Depreciation shows favorable variance for wholesale sales and unfavorable variance for retail and outlet sales