Britney Brown, the plant Manager of LMN Co’s Chicago Plant, is responsible for a
ID: 2455973 • Letter: B
Question
Britney Brown, the plant Manager of LMN Co’s Chicago Plant, is responsible for all of that plant’s costs other than her own salary. The plant has two operating departments and one service department. The refrigerator and dishwasher operating departments manufacture different products and have their own managers. The office department, which Brown also manages, provides services equally to the two operating departments. A monthly budget is prepared for each operating department and the office department. The company’s responsibility accounting system must assemble information to present budgeted and actual costs in performance reports for each operating department manager and the plant manager. Each performance report includes only those costs that a particular operating department manager can control; raw materials, wages, supplies used, and equipment depreciation. The plant manager is responsible for the department managers salaries, utilities, building rent, office salaries other than her own, and other office costs plus all costs controlled by the two operating department managers. The April departmental budgets and actual costs for the two operating departments follow.
BUDGET
Actual
Refrigerators
Dishwashers
Combined
Refrigerators
Dishwashers
Combined
Raw Materials
$400,000
$200,000
$600,000
$385,000
$202,000
$587,000
Employee Wages
170000
80000
250000
174700
81500
256200
Dept. Manager Salary
55000
49000
104000
55000
46500
101500
Supplies Used
15000
9000
24000
14000
9700
23700
Depreciation - Equip.
53000
37000
90000
53000
37000
90000
Utilities
30000
18000
48000
34500
20700
55200
Building Rent
63000
17000
80000
65800
16500
82300
Office Department Costs
70500
70500
141000
75000
75000
150000
Total
856500
480500
1337000
857000
488900
1345900
The office department’s budget and its actual costs for April follow.
BUDGET
ACTUAL
Plant Manager Salary
$80,000
$85,000
Other Office Salaries
$40,000
$35,200
Other Office Costs
$21,000
$29,800
TOTALS
$141,000
$150,000
1. Prepare responsibility accounting performance reports that list costs controlled by the following.
a. Manager of the refrigerator department.
b. Manager of the dishwasher department.
c. Manager of the Chicago plant.
In each report include the budgeted and actual costs for the month and show the amount by which each actual cost is over or under the budgeted amount.
2. Did the plant manager or the operating department managers better manage costs and why?
BUDGET
Actual
Refrigerators
Dishwashers
Combined
Refrigerators
Dishwashers
Combined
Raw Materials
$400,000
$200,000
$600,000
$385,000
$202,000
$587,000
Employee Wages
170000
80000
250000
174700
81500
256200
Dept. Manager Salary
55000
49000
104000
55000
46500
101500
Supplies Used
15000
9000
24000
14000
9700
23700
Depreciation - Equip.
53000
37000
90000
53000
37000
90000
Utilities
30000
18000
48000
34500
20700
55200
Building Rent
63000
17000
80000
65800
16500
82300
Office Department Costs
70500
70500
141000
75000
75000
150000
Total
856500
480500
1337000
857000
488900
1345900
Explanation / Answer
Manager of the refrigerator department:
Responsibility accounting performane report
Manager of the Dishwasher department
Responsibility accounting performance report
Chicago plant manager
Responsibility accounting performance report
It is not clear what was the capacity utilization by each manufacturing department in the plant. But apparently, the manager of the refrigerator department has done a better job of managing costs compared to his counterpart in the dishwasher department. Overall the plant manager's performance is the worst of the three.
Budget Actual Variance Favorable/ Adverse Raw materials 400,000 385,000 15,000 F Employee wages 170,000 174,700 4,700 A Supplies used 15,000 14,000 1,000 F Depreciation on equipment 53,000 53,000 NIL Total 6,38,000 626,700 11,300 FRelated Questions
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