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)Enumerate which of the items should be included in the responsibility report for each of the three managers.

B)Compare the budgeted measures with the actual results. Decide which results should be called to the attention of each manager.

Answer 1

a)Determine which of the items should be included in the responsibility report for each of the three managers.
	Retail Sales	Wholesale Sales	Outlet Sales
Managers	Mary Gammel	Stephen Flott	Jose Gomez
Responsibility	Profit Center	Cost Center	Investment Center
Items Responsible for	Sales	Inventory	Sales
	Inventory	Advertising	Inventory
	Advertising	Sales Personnel	Advertising
	Sales Personnel	Printing	Sales Personnel
	Printing	Travel	Printing
	Travel		Travel
			Rent
			Insurance
			Depreciation
			Investment in assets
b)
	Budgeted Retail Sales	Actual Retail Sales	%Change
Sales	$750,000.00	$750,000.00	0.00%
Variable costs
Cost of goods sold	$150,000.00	$192,000.00	21.88%	Attention Needed
Advertising	$100,000.00	$100,000.00	0.00%
Sales salaries	$75,000.00	$75,000.00	0.00%
Printing	$10,000.00	$10,000.00	0.00%
Travel	$20,000.00	$14,000.00	-42.86%	Attention Needed
	Budeted Wholesale Sales	Actual Wholesale Sales	%Change
Cost of goods sold	$100,000.00	$122,000.00	18.03%	Attention Needed
Advertising	$30,000.00	$30,000.00	0.00%
Sales salaries	$15,000.00	$15,000.00	0.00%
Printing	$20,000.00	$20,000.00	0.00%
Travel	$30,000.00	$21,000.00	-42.86%	Attention Needed
	Budgeted Outlet Sales	Actual Outlet Sales	% Change
Sales	$200,000.00	$200,000.00	0.00%
Variable costs
Cost of goods sold	$25,000.00	$26,500.00	5.66%	Attention Needed
Advertising	$5,000.00	$5,000.00	0.00%
Sales salaries	$3,000.00	$3,000.00	0.00%
Printing	$5,000.00	$5,000.00	0.00%
Travel	$2,000.00	$1,500.00	-33.33%	Attention Needed
Fixed costs
Rent	$10,000.00	$12,300.00	18.70%	Attention Needed
Insurance	$1,000.00	$1,000.00	0.00%
Depreciation	$40,000.00	$56,000.00	28.57%	Attention Needed
Investment in assets	$800,000.00	$800,000.00	0.00%