What role might decentralization play

Assignment Help Financial Accounting

Reference no: EM1311404

Redrafting contribution Margin statements.

Austin's Shooters, Inc. operates a paintball course where customers can come to play paintball games and stage organized matches with their friends. Their accountant, Denny Dinsdale, has produced an income statement (presented below) depicting their first year's operating data in the contribution margin format. The news is not good, given the loss of $30,000. However, Denny explains that this is the reason that the presentation is in this format. That is, Austin Douglas, the owner and manager of Austin's Shooters, Inc. can use the statement to determine what will happen next year given changes in volume.

Income Statement For the Year Ended December 31, 2004
Revenue:
Admission fees (1,600 shooters)	$80,000
Supplies and Concessions	$24,000
Total Revenue ($65 per unit)	$104,000
Variable Costs:
Cost of supplies & Concessions Sold	$14,000
Electricity (purchased per KWH)	$30,000
Wages of Games Coordinators (DL)	$40,000
Liability Insurance (based on # of customers)	$10,000
Total Variable Costs	$94,000
Contribution Margin	$10,000
Fixed Costs:
Depreciation - Bldg & Fixtures	$12,000
Advertising	$3,000
Heat and Light for Bldg.	$5,000
Property Taxes	$20,000
Total Fixed Costs	$40,000
Operating Income	$<30,000>

After careful review, Austin tells Denny that the classifications are not all correct. Austin enumerates three issues as follows:

1. Electricity cost is only for lighting a rather large area of land for play at night and is always on after sunset regardless of how many shooters are on site.
2. Although the wages of games coordinators are hourly, they are required to be present during all working hours to help ensure the safety of the shooters. Number of workers is adequate for up to 4,000 customers annually.
3. Since the liability insurance amount is based on number of shooters it does vary with volume, but it only increases for increments of every additional 5,000 shooters. Volume is expected to increase to 2,500 shooters next year, but 5,000 shooters clearly exceed the relevant range of expected operations for the foreseeable future.

Denny has assured Austin that the information is accurate and that the expenses are properly classified.

Do you believe this situation is more likely or less likely to occur in larger v. smaller companies? What role might decentralization play?

Reference no: EM1311404

Questions Cloud

Computation of required return : Computation of required return and If MUG stock currently sells for $48 per share then what is the required return

Closed economy and small open economy : Discuss how each of the following developments would affect the supply of the money, the demand for money, and the interest rate. For each case, describe what happens in closed economy and in small open economy. Describe your answers with diagrams.

Purpose a production budget for playclay : Purpose a production budget for Playclay for the months July, August, September, and October and Materials purchase Budget For the quarter from the data given below

Determining z-score of sample means : Population has mean of µ = 45 and standard deviation of σ = 20. Determine the z-score corresponding to each of the given sample means obtained from this population.

What role might decentralization play : Denny has assured Austin that the information is accurate and that the expenses are properly classified and Do you believe this situation is more likely or less likely to occur in larger v. smaller companies? What role might decentralization play..

Gini coefficient and hypothetical gini values : First explain what the Gini coefficient is and what hypothetical Gini values of 0 and 1 mean. Sort the data by the Gini coefficient in 2000 and look at the list of countries.

Dissertation writing - criminology and law enforcement. : Dissertation writing - Criminology and law enforcement. "When you are the sheriff of Nowhere, you encounter strange crimes"

Computation of current share price : Computation of current share price and If the required rate on this stock is 10% what is the current share price

Absolute advantage and comparative advantage : Discuss how absolute advantage and comparative advantage differ? Kyle can read 20 pages of the economics in an hour. He can also read 50 pages of history in an hour. He spends 5 hours pre day studying. Draw Kyle's production possibilities fron..

User Account

All Pages