The Danner and LaRussa Dental Clinic provides both preventive and orthodontic dental services. The two owners, Riley Danner and Alexa LaRussa, operate the clinic as two separate investment centers: Preventive Services and Orthodontic Services. Each of them is in charge of one of the centers: Riley for Preventive Services and Alexa for Orthodontic Services. Each month they prepare an income statement for the two centers to evaluate performance and make decisions about how to improve the operational efficiency and profitability of the clinic.

Recently they have been concerned about the profitability of the Preventive Services operations. For several months it has been reporting a loss. Shown below is the responsibility report for the month of May 2011.

In addition, the owners know that the investment in operating assets at the beginning of the month was $82,400, and it was $77,600 at the end of the month. They have asked for your assistance in evaluating their current performance reporting system.

Instructions

(a) Prepare a responsibility report for an investment center as illustrated in the chapter.

(b) Write a memo to the owners discussing the deficiencies of their current reporting system.

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Difference from Budget Actual 40,000 $1,000 F Service revenue Variable costs: Filling materials Novocain Supplies Dental assistant wages Utilities 5,000 4,000 2,000 2,500 500 14,000 100 U 200 U 250 F 50 U Total variable costs 100 U Fixed costs Allocated portion of receptionists salary Dentist salary Equipment depreciation Allocated portion of building 3,000 10,000 6,000 200 U 500 U 15,000 34,000 $ (8,000) 1,000 U 1,700 U $800 U depreciation Total fixed costs Operating income (loss)