RESPONSIBILITY ACCOUNTING FAMILY RESORTS, INC. RESPONSIBILITY SUMMARY ($000 omitted) Reporting Unit: Family Resorts Responsible Person: President Mid-Atlantic Region New England Region Unallocated costs Reporting Unit: Maine District Responsible Person: District Manager Harbor Inn $ 605 $ 80 365 Camden Country Inn 60 (160) $ 810 Unallocated costs (35) Income before taxes Total contribution $ 105 Reporting Unit: New England Region Responsible Person: Regional Manager Vermont Reporting Unit: Harbor Inn Responsible Person: Innkeeper Revenue $ 200 140 105 $ 600 (455) (65) New Hampshire Controllable costs Maine Allocated costs Unallocated costs (80) Total contribution $ 80 Total contribution $ 365 RESPONSIBILITY AcCOUNTING FAMILY RESORTS, INC. CONDENSED OPERATING BUDGET-MAINE DISTRICT FOR THE YEAR ENDING DECEMBER 31, 2008 (S000 OMITTED) Region New England District Maine DistAct Inns Family Resorts Mid- New Not New Not Allocated? Camden England Allocated' Hampshire Atlantic Vermont Maine Harbor Country Net sales Cost of sales $7,900 $4,200 2,310 $3,700 $1,400 $1,200 720 $1,100 660 $600 $500 4,530 2,220 840 360 300 Gross margin $3,370 $1,890 $1,480 $ 560 $ 480 $ 440 $240 $200 Controllable expenses: Supervisory Training Advertising Repairs and maintenance $ 110 $ 10 $ 240 160 $ 130 35 %24 30 45 $20 $ 15 80 80 30 25 25 15 10 500 280 220 $ 50 55 60 55 15 20 20 480 225 255 90 85 80 40 40 - Total controllable $ 665 $ 815 $ 50 $ 210 $ 350 $ 200 $ 280 expenses $1,380 $ 715 $ 205 $ 25 $ 95 $ 85 Controllable contribution $1,990 $1,175 $(50) $ 235 $(25) $145 $115 Expenses controlled by others: Depreciation Property taxes $ 520 200 $ 300 120 $ 220 80 $ 30 60 $ 10 $ 30 10 $ 20 10 70 60 30 30 20 Insurance 300 150 150 50 50 50 25 25 Total expenses controlled by others $1,020 $ 570 $ 450 $ 30 $ 150 $ 140 $ 130 $ 10 $ 65 $ 55 Total contribution $ 970 $ 605 $ 365 $(80) $ 200 $ 140 $ 105 $(35) $ 80 $ 60 Unallocated costs 160 Income before taxes $ 810 1Unallocated expenses include a regional advertising campaign and equipment used by the regional manager. 2Unallocated expenses include a portion of the district manager's salary, district promotion costs, and a district manager's car. 3Unallocated costs include taxes on undeveloped real estate, headquarters' expense, legal fees, and audit fees. %24 %24 %24 %24
Family Resorts, Inc., is a holding company for several vacation hotels in the northeastern and mid-Atlantic states. The firm originally purchased several old inns, restored the buildings, and upgraded the recreational facilities. Vacationing families have been well pleased with the inns because many services are provided that accommodate children and afford parents time for themselves. Since the completion of the restoration 10 years ago, the company has been profitable.
Family Resorts has just concluded its annual meeting of regional and district managers. This meeting is held each November to review the results of the previous season and to help the managers prepare for the upcoming year. Before the meeting, the managers submitted proposed budgets for their districts or regions as appropriate. These budgets are reviewed and consolidated into an annual operating budget for the entire company. The 2008 budget has been presented at the meeting, and the managers accepted it. To evaluate the performance of its managers, Family Resorts uses responsibility accounting. Therefore, the preparation of the budget is given close attention at headquarters. If major changes need to be made to the budgets that the managers submitted, all affected parties are consulted before the changes are incorporated. The two figures, present two reports from the budget booklet that all managers received at the meeting.
a. Responsibility accounting has been used effectively by many companies, both large and small.
1. Define responsibility accounting.
2. Discuss the benefits that accrue to a company using responsibility accounting.
3. Describe the advantages of responsibility
b. The regional and district managers accepted Family Resort’s budget. Based on the facts presented, evaluate the budget process Family Resorts employs by addressing the following:
1. What features of the budget presentation shown are likely to make the budget attractive to managers?
2. What recommendations, if any, could be made to the budget preparers to improve the budget process? Explain your answer.
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