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Q16a. Responsibility accounting (10 pts) Classico\'s Pizza, a chain of pizza par

ID: 2516911 • Letter: Q

Question

Q16a. Responsibility accounting (10 pts) Classico's Pizza, a chain of pizza parlors, views each branch location as an investment center The local branch reported the following results for the current year: Sales Variable expenses Traceable fixed costs Average total assets of the branch $2,970,000 1,440,000 Compute the following measures for this investment center: (a) Contribution margin: S (b) Contribution margin ratio:- % (c) Responsibility margin: S (d) Increase in annual responsibility margin that would be expected to result from a 10% increase in sales volume: S Show work (Label your answers)

Explanation / Answer

Answer (a)

Contribution Margin = Sales - Variable expenses = $3,600,000 - $2,970,000 = $630,000

Answer (b)

Contribution Margin Ratio = (Contribution Margin / Sales) * 100 = ($630,000 / $3,600,000 ) * 100 = 17.50 %

Answer (c)

Responsibility Margin = Contribution Margin - Traceable Fixed Costs = $630,000 - $270,000 = $360,000

Answer (d)

Note : Increse in sales volume by 10 % means contribution margin also increse by 10 %

New Contribution Margin = $630,000 * 110 % = $693,000

New Responsibility Margin = $693,000 - $270,000 = $423,000

Increse in responsibility margin due to increase in sales volume =  $360,000 - $423,000 = $63,000