Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 24: 16E (page 1360)

Question:The accountant for a subunit of Speed Sports Company went on vacation before completing the subunit’s monthly responsibility report. This is as far as she got:

Speed—Subunit X Revenue by Product Actual Results Flexible Budget Variance Flexible Budget Sales Volume Variance Static Budget

Downhill-RI \( 321,000 (a) (b) \) 17,000 F \( 295,000

Downhill-RII 151,000 (c) \) 161,000 (d) 145,000

Cross-EXI 285,000 \( 3,000 U 288,000 (e) 303,000

Cross-EXII 259,000 (f) 255,000 16,500 U 271,500

Snow-LXI 425,000 2,000 F (g) (h) 404,000

Total \) 1,441,000 (i) (j) (k) \( 1,418,500

Requirements

1. Complete the responsibility report for this subunit.

2. Based on the data presented, what type of responsibility center is this subunit?

3. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding \)12,000?

Short Answer

Expert verified

Answer

(1) The responsibility report is prepared in Step 1.

(2) It is a revenue center.

(3) The variances which should be investigated are Downhill RI - $17,000 (F), Downhill RII - $16,000 (F), Cross EXI – ($15,000) (U), Cross EXII – ($16,500) (U), Snow LXI - $19,000 (U)

Step by step solution

01

Preparation of responsibility report

Speed Subunit X

Actual results

Flexible Budget Variance

Flexible Budget

Sales Volume Variance

Static Budget

Downhill RI

$321,000

$9,000 F

$312,000

$17,000 F

$295,000

Downhill RII

$151,000

$10,000 U

$161,000

$16,000 F

$145,000

Cross EXI

$285,000

$3,000 U

$288,000

$15,000 U

$303,000

Cross EXII

$259,000

$4,000 F

$255,000

$16,500 U

$271,500

Snow LXI

$425,000

$2,000 F

$423,000

$ 19,000 F

$404,000

Note: Flexible budget variance is difference between actual results and flexible budget. Sales volume variance is difference between flexible budget and static budget.

02

Type of Responsibility center

As per the data provided in the question the subunit is the revenue center as the data is all about the revenue of the business. The revenue center has the main responsibility to generate revenue.

03

Variances that should be investigated

The following variances should be investigated as per the management’s decision criteria of variances exceeding the amount of $12,000

  1. Downhill RI - $17,000 (F)
  2. Downhill RII - $16,000 (F)
  3. Cross EXI – ($15,000) (U)
  4. Cross EXII – ($16,500) (U)
  5. Snow LXI - $19,000 (U)

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is the biggest disadvantage of using ROI to evaluate investment centers?

Padgett Company has compiled the following data:

Net sales revenue $1,000,000

Operating income 60,000

Average total assets 400,000

Management’s target rate of return 12%

Compute the following amounts for Padgett:

  1. Profit margin ratio
  2. Asset turnover ratio
  3. Return on investment
  4. Residual income

Using ROI and RI to evaluate investment centers

Consider the following condensed financial statements of Pure Life, Inc. The company’s target rate of return is 30%.

PURE LIFE, INC. Income Statement For the Year Ended December 31, 2018 Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses 2,300,000 2,000,000 300,000 (34,000) 266,000 3,700,000 \( 6,000,000 Operating Income Interest Expense Other Income and (Expenses): Income Before Income Tax Expense Income Tax Expense Net Income 93,100 \) 172,900

PURE LIFE, INC. Comparative Balance Sheet As of December 31, 2018 and 2017 Assets 2018 2017 Cash Accounts Receivable Supplies Property, Plant, and Equipment, net Patents, net Total Assets Accounts Payable Short-term Notes Payable Long-term Notes Payable Common Stock, no Par Retained Earnings Total Liabilities and Stockholders’ Equity Liabilities and Stockholders’ Equity \( 62,000 200 204,000 101,000 \) 394,000 26,800 \( 76,000 600 305,000 163,000 \) 606,000 61,400 52,000 \( 31,000 126,500 169,000 15,500 \) 394,000 148,000 \( 29,000 196,000 205,500 27,500 \) 606,000

Requirements

1. Calculate the company’s ROI. Round all of your answers to four decimal places.

2. Calculate the company’s profit margin ratio. Interpret your results.

3. Calculate the company’s asset turnover ratio. Interpret your results.

4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results.

5. Calculate the company’s RI. Interpret your results.

Question: How is RI calculated?

Classify each key performance indicator according to the balancedscorecard perspective it addresses. Choose from the following: financialperspective, customer perspective, internal business perspective, or learning andgrowth perspective.

9. Number of repeat customers

10. Employee turnover

11. Revenue growth

12. Number of on-time deliveries

13. Number of defects found during the manufacturing process
See all solutions

Recommended explanations on Business Studies Textbooks

Managerial Economics

Read Explanation

Nature of Business

Read Explanation

Financial Performance

Read Explanation

Managers

Read Explanation

Operational Management

Read Explanation

Business Development

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free