RESPONSIBILITY

ACCOUNTING Report
Nimfa Carolina
Mondarte
Mark Catahina
Maria Krizelle Reyes

PROBLEM
LETA Learning Systems specializes in education and
training. One responsibility center in the Professional
Seminar Division is Government Contract Seminars.
It is treated as a profit center for performance
evaluation purposes.
Because the Department of Defense is downsizing,
many companies are cutting back and sending
people

to

fewer

seminars.

Actual

Results

and

variances for the last fiscal year for Government

Contract Seminars are as follows:

PROBLEM
Seminars are for one, two, and three days. The
budget expected the average class days per seminar
to be 2.5 days; the actual average was 2 days. The
managers salary, included above, is $60,000 and
was budgeted at the level.

required
1. Since Government Contract Seminars is a profit center,
the presumption is that the manager controls revenues.
The factors influencing revenues are the number of
seminar participants and the number and length of
seminars. Does the manager really control these factors?
Explain.
Answer:
In a Profit Center, the manager has control on both costs
and revenues but not over use of investment funds. In the
case above, the manager can fix the seminar fee at an
amount he wants for a profit or lower the cost of the
variable expenses to earn a reasonable profit.

required
2. In general, are the variances in this report
controllable by the manager of the profit center?
Which

costs

and

related

variances

are

not

controllable by the manager?

Answer:
In

general,

the

variances

in

this

report

are

controllable by the manager of the profit center.

There are costs though that are puzzling and crucial
in this center (or segment) reporting since traceable
fixed costs are charged to segments and common
fixed costs are not;

required
a)

Traceable Fixed Cost-the general guideline is to treat as

traceable costs only those that would disappear over time if the
segment (center) itself disappeared.

In this case, only the

manager's salary of $60,000 is the only traceable cost to this

center;
b) Common Fixed Cost-costs that are clearly common and that
will continue regardless of whether the segment exists or not.
This is because any allocation of common costs to segment
reduces the
measure

of

performance.

value of the segment (center) margin as a

long-run

segment

profitability

and

segment

In this case, Office Expenses and Promotion

Expenses should be common fixed costs and must be charged

from Total Company Expense;

required
c)

Cost Allocation - costs should be allocated to

segments

(centers)

for

internal

purposes

only when the allocation base actually

drives the cost being allocated

decision-making

(or is very highly

correlated with the real cost driver. In this case, the

allocated cost must be a percentage of what drives
the Sales or 14% of P389,000 (Variance of 25 over
175 number of seminars given).

required
3. Suggest improvements in the report.
performance

report

which

you

Prepare a

believe

better

describes the manager's performance than the

preceding report.

Answer:

Answer:
The Manager does not have control over the
allocated cost charged to his department but even
then only by at certain percentage will this have to
be charged which is correlated to the real cost driver.
The manager's performance may be gauged by
using the following measure of profitability;

Fav. (Unfav.)

ACTUAL

BUDGET

VARIANCE

a.ContributionMargin

749,200

1,404,000

53%

b.NetProfitMargin

134,200

1,404,000

10%

a.ContributionMargin

749,200

1,404,000

53%

b.NetProfitMargin

634,740

1,404,000

45%

From the Reported:

To The Revised:

Thank you!