Reference no: EM13888109

Lanier Company manufactures expensive watch cases sold as souvenirs. Three of its sales departments are Retail Sales, Wholesale Sales, and Outlet Sales. The Retail Sales Department is a profit center. The Wholesale Sales Department is a cost center. Its managers merely take orders from customers who purchase through the company's wholesale catalog. The Outlet Sales Depart- ment is an investment center because each manager is given full responsibility for an outlet store location. The manager can hire and discharge employees, purchase, maintain, and sell equipment, and in general is fairly independent of company control.

Mary Gammel is a manager in the Retail Sales Department. Stephen Flott manages the Whole- sale Sales Department. Jose Gomez manages the Golden Gate Club outlet store in San Francisco. The following are the budget responsibility reports for each of the three departments.

Budget	Retail Sales	Wholesale Sales	Outlet Sales
Sales Variable costs	$  750,000	$  400,000	$200,000
Cost of goods sold	150,000	100,000	25,000
Advertising	100,000	30,000	5,000
Sales salaries	75,000	15,000	3,000
Printing	10,000	20,000	5,000
Travel	20,000	30,000	2,000
Fixed costs
Rent	50,000	30,000	10,000
Insurance	5,000	2,000	1,000
Depreciation	75,000	100,000	40,000
Investment in assets	1,000,000	1,200,000	800,000

Actual Results	Retail Sales	Wholesale Sales	Outlet Sales
Sales Variable costs	$  750,000	$  400,000	$200,000
Cost of goods sold	192,000	122,000	26,500
Advertising	100,000	30,000	5,000
Sales salaries	75,000	15,000	3,000
Printing	10,000	20,000	5,000
Travel	14,000	21,000	1,500
Fixed costs Rent	40,000	50,000	12,300
Insurance	5,000	2,000	1,000
Depreciation	80,000	90,000	56,000
Investment in assets	1,000,000	1,200,000	800,000

Instructions

(a) Determine which of the items should be included in the responsibility report for each of the three managers.

(b) Compare the budgeted measures with the actual results. Decide which results should be called to the attention of each manager.