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ACCOUNTING FOR DECISION MAKING – CHAPTER # 12

Exercise 12-31 (Performance Report; Hotel)

The following data pertain to the Waikiki Sands Hotel for the month of March.

Flexible Budget for March Actual Results for March


(Rs. in thousands)* (Rs. in thousands)*
Banquets and Catering 650 658
Restaurants 1,800 1,794
Kitchen staff wages (85) (86)
Food (690) (690)
Pager products (125) (122)
Variable overhead (75) (78)
Fixed overhead (90) (93)
*Numbers without parentheses denote profit; numbers with parentheses denote expenses.

Required: Prepare a March performance report similar to the lower portion of Exhibit 12-4. The report
should have six numerical columns with headings analogous to those in Exhibit 12-4. Your performance
report should cover only the Food and Beverage Department and the Kitchen. Draw arrows to show the
relationships between the numbers in the report. Refer to Exhibit 12-4 for guidance. For the year to date
columns in your repot, use the data given in Exhibit 12-4. You will need to update those figures using the
March data given above.

Exercise 12-33 (Segmented Income Statement; TV Cable Company)

Countrywide Cable Services, Inc., is organized with three segments; Metro, Suburban, and Outlying. Data
for these segments for the year just ended follow.

Metro (Rs.) Suburban Outlying (Rs.)


(Rs.)
Service revenue 1,000,000 800,000 400,000
Variable expenses 200,000 150,000 100,000
Controllable fixed expenses 400,000 320,000 150,000
Fixed expenses controllable by others 230,000 200,000 90,000

Required:

Prepare a segmented income statement for Countywide Cable Services, Inc. Use the contribution format.

Problem 12-39 (Create an Organization)

Here is your chance to be a tycoon. Create your own company. You will be the president and chief executive
officer. It could be a manufacturer, retailer, or service industry firm, but not a hotel or bank. Draw an
organization chart for your company, similar to the one in Exhibit 12-1. Identify divisions and departments at all
levels in the organization. Then prepare a companion chart similar to the one in Exhibit 12-2. This chart should
designate the title of the manager of a subunit at each level in the organization. It also should designate the type
of responsibility center appropriate for each of these subunits. Finally, write a letter to your company's
stockholders summarizing the major responsibilities of each of the managers you identified in your chart. For
guidance, refer to the discussion of Exhibits 12-1 and 12-2inthe chapter. (Have some fun, and be creative.)

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ACCOUNTING FOR DECISION MAKING – CHAPTER # 12

Problem 12-41 (Designating Responsibility Centers; Hotel)

The following partial organization chart is an extension of Exhibit 12-1 for Aloha Hotels and Resorts.

Waikiki Sands Hotel

Grounds and Housekeeping Recreational Food and


Maintenance and Custodial Services Hospitality Beverage
Department Department Department Department Department

Front Bell Guest


Desk Staff Services

Each of the hotel's five main departments is managed by a director (e.g., director of hospitality). The Front Desk
subunit, which is supervised by the front desk manager, handles the hotel's reservations, room assignments, guest
payments, and key control. The Bell Staff, managed by the bell captain, is responsible for greeting guests, front door
service, assisting guests with their luggage, and delivering room-service orders. The Guest Services subunit, supervised
by the manager of Guest Services, is responsible for assisting guests with local transportation arrangements, advising
guests on tourist attractions, and such conveniences as valet and floral services.

Required: As an outside consultant, write a memo to the hotel's general manager suggesting a responsibility-
center designation for each of the subunits shown in the organization chart above. Justify your
choices.

Problem 12-43 (Cost Distribution Listing Allocation Bases; Hospital)


Refer to the organization chart for Rocky Mountain General Hospital given in the preceding problem. Ignore the
rest of the data in that problem. The following table shows the cost allocation bases used to distribute various
costs among the hospital's divisions.

Cost Pool Cost Allocation Base Annual Cost


(Rs.)
Facilities:
Building depreciation Square feet of space 190,000
Equipment depreciation
Insurance
Utilities:
Electricity Cubic feet of space 24,000
Waste disposal
Water and sewer
Cable TV and phone
Heat
General administration:
Administrator Budgeted number of employees 220,000
Administrative staff
Office supplies
Community outreach:
Public education Budgeted dollars of patient billings 40,000
School physical exams

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ACCOUNTING FOR DECISION MAKING – CHAPTER # 12
Shown below are the amounts of each cost allocation base associated with each division.

Square Feet Cubic Feet Number of Patient


Employees Billings
Rs.
General Medicine Division 15,000 135,000 30 2,000,000
Surgical Division 8,000 100,000 20 1,250,000
Medical Support Division 9,000 90,000 20 750,000
Administrative Division 8,000 75,000 30 0
Total 40,000 400,000 4,000,000

Required:

1. Prepare a table similar to Exhibit 12-5 that distributes each of the costs listed in the preceding table to
the hospital's divisions.
2. Comment on the appropriateness of patient billings as the basis for distributing community outreach
costs to the hospital's divisions. Can you suggest a better allocation base?
3. Is there any use in allocating utilities costs to the divisions? What purposes could such an allocation
process serve?

Problem 12-44 (Segmented Income Statement; Responsibility Accounting)


Show-Off, Inc. sells merchandise through three retail outlets—in Las Vegas, Reno, and Sacramento— and
operates a general corporate headquarters in Reno. A review of the company's income statement indicates a
record year in terms of sales and profits. Management, though, desires additional insights about the individual
stores and has asked that Judson Wyatt, a newly hired intern, prepare a segmented income statement. The
following information has been extracted from Show-Off s accounting records:

• The sales volume, sales price, and purchase price data follow:

Las Vegas Reno Sacramento


Sales volume 37,000 units 41,000 units 46,000 units
Unit selling price Rs. 12.00 Rs. 11.00 Rs. 9.50
Unit purchase price Rs. 5.50 Rs. 5.50 Rs. 6.00

• The following expenses were incurred for sales commissions, local advertising, property taxes, man-
agement salaries, and other non-controllable (but traceable) costs:

Las Vegas Reno Sacramento


Sales commissions 6% 6% 6%
Local advertising Rs. 11,000 Rs. 22,000 Rs. 48,000
Local property taxes 4,500 2,000 6,000
Sales manager salary — — 32,000
Store manager salaries 31,000 39,000 38,000
Other non-controllable costs 5,800 4,600 17,800

Local advertising decisions are made at the store manager level. The sales manager's salary in Sacramento is
determined by the Sacramento store manager; in contrast, store manager salaries are set by Show-Off s vice
president.

• Non-traceable fixed corporate expenses total Rs. 192,300.


• The company uses a responsibility accounting system.

Required:

1. Assume the role of Judson Wyatt and prepare a segmented income statement for Show-Off.
2. Determine the weakest-performing store and present an analysis of the probable causes of poor
performance.
3. Assume that an opening has arisen at the Reno corporate headquarters and the company's chief
executive officer (CEO) desires to promote one of the three existing store managers. In evaluating the
store managers' performance, should the CEO use a store's segment contribution margin, the profit
margin controllable by the store manager, or a store's segment profit margin? Justify your answer.

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