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Chapter 24: 18E (page 1361)
Refer to the data in Exercise E24-17. Calculate each division’s RI. Interpret your results.
The residual income of Residential is $15,360 and for professionals is $60,300. Both the divisions have positive residual income.
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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?
Decentralization divides company operations into various reporting units. Most decentralized subunits can be described as one of four different types of responsibility centers.
Requirements
1. Explain why companies decentralize. Describe some typical methods of decentralization.
2. List the four most common types of responsibility centers, and describe their responsibilities.
Question: Using ROI and RI to evaluate investment centers
This problem continues the Piedmont Computer Company situation from Chapter 23. Piedmont Computer Company reported 2020 sales of \(3,600,000 and operating income of \)183,600. Average total assets during 2020 were $600,000. Piedmont Computer Company’s target rate of return is 16%.
Calculate Piedmont Computer Company’s profit margin ratio, asset turnover ratio, ROI, and RI for 2020. Comment on the results.
Grandpa Jim’s Cookie Company sells homemade cookies made with organic ingredients. His sales are strictly Web based. The business is taking off more than Grandpa Jim ever expected, with orders coming from across the country from both consumers and corporate event planners. Grandpa decides to decentralize and hires a full-time baker who will manage production and product costs and a Web site designer/sales manager who will focus on increasing sales through the Web site. Grandpa Jim can no longer handle the business on his own, so he hires a business manager to work with the other employees to ensure the company is best utilizing its assets to produce profit. Grandpa will then have time to focus on new product development. Now that Grandpa Jim’s Cookie Company has decentralized, identify the type of responsibility center that each manager is managing
What is a responsibility center?
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