Krause Manufacturing Inc. operates the Patio Furniture Division as a profit cent

ID: 2443983 • Letter: K

Question

Krause Manufacturing Inc. operates the Patio Furniture Division as a profit center. Operating data for this division for the year ended December 31, 2011, are as shown below.
Budget
Difference
from Budget

Sales $2,500,000 $60,000 F
Cost of goods sold
Variable 1,300,000 41,000 F
Controllable fixed 200,000 6,000 U
Selling and administrative
Variable 220,000 7,000 U
Controllable fixed 50,000 2,000 U
Noncontrollable fixed costs 70,000 4,000 U

In addition, Krause Manufacturing incurs $180,000 of indirect fixed costs that were budgeted at $175,000. Twenty percent (20%) of these costs are allocated to the Patio Furniture Division.

Prepare a responsibility report for the Patio Furniture Division for the year. (For multiple cost lines list items from largest to smallest, e.g. 10, 7, 5, 2. If an answer is 0 enter 0 for the amount and NA for the variance. Enter all amounts as positive amounts and subtract where necessary.)

KRAUSE MANUFACTURING INC.
Patio Furniture Division
Responsibility Report
For the Year Ended December 31, 2011

Difference
Favorable F
Unfavorable U
Budget
Actual
Neither NA

Sales $
$
$
F
Variable costs
Cost of goods sold F
Selling and administrative

U
Tot. variable costs

F
Contribution margin

F
Controllable fixed costs
Cost of goods sold U
Selling and administrative

U
Tot. fixed costs

U
Controllable margin $
$
$
F

Explanation / Answer

(a)

KRAUSE MANUFACTURING INC.

RESPONSIBILTY REPORT OF PATIO FURNITURE DIVISION FOR AUGUST, 2011

PARTICULRS

Budget

Actual

Difference

F / U

Sales

25,00,000

25,60,000

60,000

Variable Cost

Variable - cost of goods sold

13,00,000

12,59,000

41,000

Variable - Selling and administrative

2,20,000

2,27,000

-7,000

Total Variable cost

15,20,000

14,86,000

34,000

Contribution Margin

9,80,000

10,74,000

94,000

Controllable Fixed cost

Cost of goods sold

2,00,000

2,06,000

-6,000

Selling and administrative

50,000

52,000

-2,000

Total Fixed cost

2,50,000

2,58,000

-8,000

CONTROLLABLE MARGIN

7,30,000

8,16,000

86,000

(b)

The Manager has been able to control the costs and revenue to some extent. There is an increase in sales, bur with that there is an increase in variable selling and administrative expense and Controllable fixed costs. These costs need to be investigated. If these costs are related to increase in sales, than these should be accepted and the budget should be properly amended, else the manger should be suitable advised.

(c)

Non-controllable fixed cost and the cost allocated from head office has been excluded from the responsibility report. These have been excluded because the manager is not responsible and cannot control these costs.