Q16a. Responsibility accounting (10 pts) Classico\'s Pizza, a chain of pizza par
ID: 2516911 • Letter: Q
Question
Q16a. Responsibility accounting (10 pts) Classico's Pizza, a chain of pizza parlors, views each branch location as an investment center The local branch reported the following results for the current year: Sales Variable expenses Traceable fixed costs Average total assets of the branch $2,970,000 1,440,000 Compute the following measures for this investment center: (a) Contribution margin: S (b) Contribution margin ratio:- % (c) Responsibility margin: S (d) Increase in annual responsibility margin that would be expected to result from a 10% increase in sales volume: S Show work (Label your answers)Explanation / Answer
Answer (a)
Contribution Margin = Sales - Variable expenses = $3,600,000 - $2,970,000 = $630,000
Answer (b)
Contribution Margin Ratio = (Contribution Margin / Sales) * 100 = ($630,000 / $3,600,000 ) * 100 = 17.50 %
Answer (c)
Responsibility Margin = Contribution Margin - Traceable Fixed Costs = $630,000 - $270,000 = $360,000
Answer (d)
Note : Increse in sales volume by 10 % means contribution margin also increse by 10 %
New Contribution Margin = $630,000 * 110 % = $693,000
New Responsibility Margin = $693,000 - $270,000 = $423,000
Increse in responsibility margin due to increase in sales volume = $360,000 - $423,000 = $63,000
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