Question

Horatio Inc. has three divisions which are operated as profit centers. Actual operating data for the division listed alphabetically are as follows Compute the musing amounts. Prepare a responsibility report for the women's Shoes Division assuming the data are for the month ended June 30, 2017, and all data equal budget except variable costs which are $5,000 over budget.

Answer 1

Concepts and reason

Variances:

Variances are the differences between the flexible budget for actual level of activity and actual results for actual level of activity. Variances may have favorable balance or unfavorable balance. When costs in actual is less than the flexible budgeted costs than variances are favorable. When costs in actual is greater than the flexible budgeted costs than variances are regarded as unfavorable.

Responsibility Report:

The responsibility report is a report which is prepared by the company to know the variations in the actual and the budgeted amounts. The comparison is done to know whether the variations in the costs and income of the company are favorable or unfavorable.

Fundamentals

Budget:

Budget is prepared for the organization as a whole. Total cost expected to be incurred are taken into account while preparing budget. The cost includes material cost, variable cost, fixed cost, estimated production capacity as well as labor costs. The analysis of variance is also done for total cost actually incurred compared to budgeted cost.

Controllable margin:

The controllable margin is to be calculated by reducing the fixed from the Contribution margin. The contribution margin is to be calculated by deducting variable expenses from the sales revenue.

Responsibility Report:

The company prepares a responsibility report to know whether the actual amount incurred by the company is higher or lower when compared with the budgeted amount. The sales revenue and net income is also compared. The management of a company utilizes the responsibility report to obtain the information regarding the deviations in the actual and the budgeted amounts which will be helpful for the management to know the reasons for the variation.

Contribution margin:

Contribution margin is computed by deducting variable costs from sales revenue. It is that portion of sales revenue that is not consumed by variable costs and is made available for consumption to fixed expense.

a.

1.

Calculate the controllable margin of Women’s shoes division.

Calculation of controllable margin of Women’s shoes division:

The amount of controllable margin of Women’s shoes division is $170,000.

2.

Calculate the variable costs of Women’s shoes division.

Calculation of variable costs of Women’s shoes division:

The amount of variable costs of Women’s shoes division is $330,000.

3.

Calculate the contribution margin of Men’s shoes division.

Calculation of contribution margin of Men’s shoes division:

The amount of contribution margin of Men’s shoes division is $130,000.

4.

Calculate the controllable fixed costs of Men’s shoes division.

Calculation of controllable fixed costs of Men’s shoes division:

The amount of controllable fixed costs of Men’s shoes division is $40,000.

5.

Calculate the controllable fixed costs of Children’s shoes division.

Calculation of controllable fixed costs of Children’s shoes division:

The amount of controllable fixed costs of Children’s shoes division is $85,000.

6.

Calculate the contribution margin of Children’s shoes division.

Calculation of contribution margin of Children’s shoes division:

The amount of sales of Children’s shoes division is $430,000.

b.

Prepare the responsibility report.

Following schedule shows the responsibility report:

Following schedule shows the calculation:

Ans: Part a.1

The amount of controllable margin of Women’s shoes division is $170,000.

Part a.2

The amount of variable costs of Women’s shoes division is $330,000.

Part a.3

The amount of contribution margin of Men’s shoes division is $130,000.

Part a.4

The amount of controllable fixed costs of Men’s shoes division is $40,000.

Part a.5

The amount of controllable fixed costs of Children’s shoes division is $85,000.

Part a.6

The amount of sales of Children’s shoes division is $430,000.

Part b