Lumbrein Luggage 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 Department 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.

Marie Cavadini is a manager in the Retail Sales Department. Luis Fontana manages the Wholesale Sales Department. Antoni Michel manages the LeMont outlet store. The following are the budget responsibility reports for each of the three departments.

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.

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Budget Retail Wholesale Outlet Sales Sales Sales CHF 400,000 CHF200,000 Sales CHF 750,000 Variable costs 150,000 25,000 Cost of goods sold Advertising 100,000 100,000 5,000 30,000 Sales salaries 75,000 15,000 3,000 20,000 Printing 10,000 5,000 30,000 Travel 20,000 2,000 Fixed costs 30,000 Rent 50,000 10,000 5,000 2,000 1,000 Insurance Depreciation 75,000 100,000 40,000 Investment in assets 1,000,000 800,000 1,200,000 Actual Results Wholesale Retail Outlet Sales Sales Sales CHF 400,000 CHF 750,000 Sales CHF200,000 Variable costs Cost of goods sold Advertising 122,000 192,000 26,500 30,000 5,000 100,000 15,000 Sales salaries 75,000 3,000 Printing 10,000 20,000 5,000 14,000 Travel 21,000 1,500 Actual Results Wholesale Retail Sales Outlet Sales Sales Fixed costs Rent CHF 40,000 CHF 50,000 2,000 CHF 12,300 Insurance 5,000 1,000 90,000 Depreciation Investment in assets 80,000 1,000,000 56,000 800,000 1 1,200,000