Lanier Company manufactures expensive watch cases sold as souvenirs. Three of it
ID: 2524398 • Letter: L
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.
Explanation / Answer
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%
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