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 Depart- ment 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 Whole- sale 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 Variable costs
|
$ 750,000
|
$ 400,000
|
$200,000
|
|
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 Variable costs
|
$ 750,000
|
$ 400,000
|
$200,000
|
|
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
|
Instructions
(a) Determine 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.