Question

In: Accounting

Lanier Company manufactures expensive watch cases sold as souvenirs. Three of its sales departments are Retail...

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

In (150 WORDS): Determine which of the items should be included in the responsibility report for each of the three managers.

Solutions

Expert Solution

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
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. Now if we see the variance report
we could see that cost of good sold has been more in actual than busgetd 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.
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

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