Question

Question:The accountant for a subunit of Speed Sports Company went on vacation before completing the subunit’s monthly responsibility report. This is as far as she got:

Speed—Subunit X Revenue by Product Actual Results Flexible Budget Variance Flexible Budget Sales Volume Variance Static Budget

Downhill-RI \( 321,000 (a) (b) \) 17,000 F \( 295,000

Downhill-RII 151,000 (c) \) 161,000 (d) 145,000

Cross-EXI 285,000 \( 3,000 U 288,000 (e) 303,000

Cross-EXII 259,000 (f) 255,000 16,500 U 271,500

Snow-LXI 425,000 2,000 F (g) (h) 404,000

Total \) 1,441,000 (i) (j) (k) \( 1,418,500

Requirements

1. Complete the responsibility report for this subunit.

2. Based on the data presented, what type of responsibility center is this subunit?

3. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding \)12,000?

Short answer

Answer

(1) The responsibility report is prepared in Step 1.

(2) It is a revenue center.

(3) The variances which should be investigated are Downhill RI - $17,000 (F), Downhill RII - $16,000 (F), Cross EXI – ($15,000) (U), Cross EXII – ($16,500) (U), Snow LXI - $19,000 (U)

Step-by-step solution

Preparation of responsibility report

Speed Subunit X	Actual results	Flexible Budget Variance	Flexible Budget	Sales Volume Variance	Static Budget
Downhill RI	$321,000	$9,000 F	$312,000	$17,000 F	$295,000
Downhill RII	$151,000	$10,000 U	$161,000	$16,000 F	$145,000
Cross EXI	$285,000	$3,000 U	$288,000	$15,000 U	$303,000
Cross EXII	$259,000	$4,000 F	$255,000	$16,500 U	$271,500
Snow LXI	$425,000	$2,000 F	$423,000	$ 19,000 F	$404,000

Note: Flexible budget variance is difference between actual results and flexible budget. Sales volume variance is difference between flexible budget and static budget.

Type of Responsibility center

As per the data provided in the question the subunit is the revenue center as the data is all about the revenue of the business. The revenue center has the main responsibility to generate revenue.

Variances that should be investigated

The following variances should be investigated as per the management’s decision criteria of variances exceeding the amount of $12,000

1. Downhill RI - $17,000 (F)
2. Downhill RII - $16,000 (F)
3. Cross EXI – ($15,000) (U)
4. Cross EXII – ($16,500) (U)
5. Snow LXI - $19,000 (U)