Question

Problem 10-4A b c (Essay) Clarke Inc. operates the Patio Furniture Division as a profit center. Operating data for this division for the year ended December 31, 2020, are as shown below. Difference Budget from Budget $2,500,000 $50,000 Favorable 1,300,000 200,000 41,000 Favorable 3,000 Unfavorable Sales Cost of goods sold Variable Controllable fixed Selling and administrative Variable Controllable fixed Noncontrollable fixed costs 220,000 50,000 70,000 6,000 Unfavorable 2,000 Unfavorable 4,000 Unfavorable In addition, Clarke incurs $180,000 of indirect foxed costs that were budgeted at $175,000. Twenty percent (20%) of these costs are allocated to the Patio Furniture Division CLARKE INC Patio Furniture Division Responsibility Report For the Year Ended December 31, 2020 Difference Favorable Unfavorable Neither Favorable or Unfavorable Budget Actual $50.000 F 41,000 F 6.000 U Sales Variable costs Cost of goods sold Selling and administrative Total Contribution margin Controllable fixed costs Cost of goods sold Selling and administrative Total 1,300,000 220,000 1,520,000 980,000 1,259,000 226,000 1,485,000 1,065,000 35,000 F 85,000 F 200,000 50,000 250,000 $730,000 203,000 52.000 255,000 $10,000 $10,000 3,000 U 2.000 U 5,000 U $80,000 F Contribution margin

Answer 1

Ans- Manager's performance in controlling revenues and costs

The manager's performance is good in controlling revenues and costs because we can see that the contribution margin after deducting the variable costs is more in the actual compared to the budget which indicates a favourable contribution margin and also the contribution margin after deducting the fixed cost is also favourable in actual compared to the budget. This indicates that the contribution  margin of Clarke Inc is more in actual than budget which is a good sign for the company. But, we can see that the controllable fixed cost is more in the actual than compared to the budget. So if the manager can concentrate on this part then the profit margin would have been more.

Identify any cost excluded from the responsibility report and explain why they were excluded

The indirect fixed cost is excluded from the responsibility report. This is because the patio furniture division is just a segment of Clarke Inc and so while determining the net profit of Clarke Inc the indirect fixed cost should be deducted as a whole. For evaluating the performance of patio furniture division indirect fixed cost is not deducted to calculate the contribution margin.