In: Accounting
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. Budget |
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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.
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 |