The Dinkle and Frizell Dental Clinic provides both preventive and orthodontic de

Question

The Dinkle and Frizell Dental Clinic provides both preventive and orthodontic dental services. The two owners, Reese Dinkle and Anita Frizell, operate the clinic as two separate investment centers: Preventive Services and Orthodontic Services. Each of them is in charge of one of the centers: Reese for Preventive Services and Anita for Orthodontic Services. Each month they prepare an income statement for the two centers to evaluate performance and make decisions about how to improve the operational efficiency and profitability of the clinic.

Recently, they have been concerned about the profitability of the Preventive Services operations. For several months, it has been reporting a loss. Shown below is the responsibility report for the month of May 2014.

In addition, the owners know that the investment in operating assets at the beginning of the month was $82,400, and it was $77,600 at the end of the month. They have asked for your assistance in evaluating their current performance reporting system.

Prepare a responsibility report for an investment center as illustrated in the chapter.

Difference from Budget $1,000 F Actual Service revenue $40,000 Variable costs: Filling materials Novocain Supplies Dental assistant wages Utilities 5,000 3,900 1,900 2,500 500 13,800 100 U 100 U 350 F 0- N 110 U 40 F Total variable costs Fixed costs: Allocated portion of receptionist's salary Dentist salary Equipment depreciation Allocated portion of building depreciation 3,000 9,800 6,000 15,000 33,800 200 U 400 U 0- N 1,000 U 1,600 U $560 U Total fixed costs Operating income (loss) $(7,600)

Explanation / Answer

Solution:

The Dinkle and Frizell Dental Clinic

Responsibility report for an investment center

Budget

Actual

Favorable F

Unfavorable U

Neither Favorable nor Unfavorable N

Service Revenue

$39,000

$40,000

$1,000

F

Variable Costs:

Filling materials

$4,900

$5,000

$100

U

Novocain

$3,800

$3,900

$100

U

Supplies

$2,250

$1,900

$350

F

Dental Assistant wages

$2,500

$2,500

$0

N

Utilities

$390

$500

$110

U

Total Variable Costs

$13,840

$13,800

Fixed Costs:

Allocated portion of receptionist's salary

$2,800

$3,000

$200

U

Dentist Salary

$9,400

$9,800

$400

U

Equipment depreciation

$6,000

$6,000

$0

N

Allocated portion of building depreciation

$14,000

$15,000

$1,000

U

Total Fixed Costs

$32,200

$33,800

$1,600

U

Operating Income (loss)

($7,040)

($7,600)

$560

U

Return on Investment

(Operating Income / Cost of Investment)

-8.54%

-9.79%

1.25%

U

Notes:-

Revenue

     ---- Favorable if Budgeted Revenue is lower than Actual Revenue

Expenses

   ---- Favorable if Budgeted Expenses is higher than Actual Expenses

----- Unfavorable if Budgeted Expenses is lower than actual expenses

Operating Income

---- Favorable if Budgeted Income is lower than actual income

---- Unfavorable if Budgeted income is higher than actual income

The Dinkle and Frizell Dental Clinic

Responsibility report for an investment center

Budget

Actual

Favorable F

Unfavorable U

Neither Favorable nor Unfavorable N

Service Revenue

$39,000

$40,000

$1,000

F

Variable Costs:

Filling materials

$4,900

$5,000

$100

U

Novocain

$3,800

$3,900

$100

U

Supplies

$2,250

$1,900

$350

F

Dental Assistant wages

$2,500

$2,500

$0

N

Utilities

$390

$500

$110

U

Total Variable Costs

$13,840

$13,800

Fixed Costs:

Allocated portion of receptionist's salary

$2,800

$3,000

$200

U

Dentist Salary

$9,400

$9,800

$400

U

Equipment depreciation

$6,000

$6,000

$0

N

Allocated portion of building depreciation

$14,000

$15,000

$1,000

U

Total Fixed Costs

$32,200

$33,800

$1,600

U

Operating Income (loss)

($7,040)

($7,600)

$560

U

Return on Investment

(Operating Income / Cost of Investment)

-8.54%

-9.79%

1.25%

U

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