Lanier Company manufactures expensive watch cases sold as souvenirs. Three of it
ID: 2529246 • 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
In (150 WORDS): Determine which of the items should be included in the responsibility report for each of the three managers.
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 1,200,000 800,000Explanation / Answer
Varaince report Retail Sales Wholesale Sales Outlet Sales Budget Actual Varaince Budget Actual Varaince Budget Actual Varaince Sales $750,000 $750,000 $0 400000 $400,000 $0 200000 $200,000 $0 Variable costs Cost of goods sold 150,000 192,000 42,000 U 100,000 122,000 22,000 U 25,000 26,500 1,500 U Advertising 100,000 100,000 0 30,000 30,000 0 5,000 5,000 0 Sales salaries 75,000 75,000 0 15,000 15,000 0 3,000 3,000 0 Printing 10,000 10,000 0 20,000 20,000 0 5,000 5,000 0 Travel 20,000 14,000 6,000 F 30,000 21,000 9,000 F 2,000 1,500 500 F Fixed cost Rent 50,000 40,000 10,000 F 30,000 50,000 20,000 U 10,000 12,300 2,300 U Insurance 5,000 5,000 0 2,000 2,000 0 1,000 1,000 0 Depreciation 75,000 80,000 5,000 U 100,000 90,000 10,000 F 40,000 56,000 16,000 U Investment in assets 1,000,000 1,000,000 1,200,000 1,200,000 800,000 800,000 If we see the above variance report the following items should be included which are in control of the managers. So we will include variable cost in the responsibility report. The fixed cost is uncontrollable hence wont be reported. Now if we see the variance report we could see that cost of good sold has been more in actual than busgetd which is an area of concern.The managers should look into the cost related with direct labor, direct material, variable manufacturing cost and pont the reason why COGS is more than Budgeted and steps should be taken to control it so in future this variance can be reduced. Travel cost variance is favorable which means that manager controlled the cost more than what was budgeted. Responsibilty report Retail Sales Wholesale Sales Outlet Sales Budget Actual Varaince Budget Actual Varaince Budget Actual Varaince Sales $750,000 $750,000 $0 400000 $400,000 $0 200000 $200,000 $0 Variable costs Cost of goods sold 150,000 192,000 42,000 U 100,000 122,000 22,000 U 25,000 26,500 1,500 U Advertising 100,000 100,000 0 30,000 30,000 0 5,000 5,000 0 Sales salaries 75,000 75,000 0 15,000 15,000 0 3,000 3,000 0 Printing 10,000 10,000 0 20,000 20,000 0 5,000 5,000 0 Travel 20,000 14,000 6,000 F 30,000 21,000 9,000 F 2,000 1,500 500 F Total variable cost 355,000 391,000 195,000 208,000 40,000 41,000 Segment Contribution margin $395,000 $359,000 $36,000 U $205,000 $192,000 $13,000 U $160,000 $159,000 $1,000 U
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