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EB 1.

LO 9.3Assume you have been hired by Cabela’s Sporting Goods. As part of your new role in the accounting department, you have been tasked to set up a responsibility accounting structure for the company. As your first task, your supervisor has asked you to give an example of a cost center, profit center, and an investment center within the Cabela’s organization. Your supervisor is a little unsure of the difference between a profit center and investment center and would like you to explain the difference.

EB 2.

LO 9.3Assume you are the regional manager for a hotel chain. You receive the quarterly financial reports and notice one particular hotel had drastically lower revenue and a corresponding high occupancy rate. Upon further investigation, you discover the manager for the hotel provided lodging for a neighboring town that was hit by a tornado. As the manager, how do you respond to this?

EB 3.

LO 9.3The following information is from Dessert Dynasty. The company runs three stores and the December Income Statement for all stores is shown.

Dessert Dynasty, Income Statement, Month December 31, 2018 for Store X, Store Y, and Store Z, respectively: Retail revenue, $17,976, $?, $37,380; Events revenue, $11,760, $4,620, $2,520; Total revenue, $29,736 $30,870 $39,900; Expenses: Ingredients, $3,528, $3,276, $?; Wages, $15,792, $18,438, $23,646; Baking supplies, $1,848, $2,352, $1,092; Fuel, $832, $1,302, $1,260 Utilities, $693, $756, $1,260; Total expenses, $22,693, $26,124, $33,222; Operating income, $?, $4,746, $6,678.
  1. Find the missing values for retail revenue, ingredients, and operating income.
  2. Comment on the financial performance of each store.
  3. Identify a limitation of analyzing the information provided.

You may want to consider using Microsoft Excel or another spreadsheet application for the numerical data. This information will be used in a subsequent question.

EB 4.

LO 9.3The following information is from Good Read Books. Good Read is a regional book store with three regional stores. The May income statement for all stores is shown.

Good Reads Books, Income Statement, Month Ending May 31, 2018 for Store 1, Store 2, and Store 3, respectively: Sales, $52,920, $32,340, $74,970; Cost of goods sold, $27,930, $14,700, $36,750; Gross profit, $24,990 $17,640 $38,220; Expenses: Selling expenses, $3,087, $1,470, $4,704; Wages expense, $11,760, $8,820, $13,230; Costs allocated from corporate, $8,085, $4,410, $22,050; Total expenses, $22,932, $14,700, $39,984; Operating income (loss), $2,058, $2,940, ($1,764).
  1. Comment on the operating income results for each store.
  2. Now assume the costs allocated from corporate is an uncontrollable cost for each store. How does this change your assessment of each store?
EB 5.

LO 9.4Assume you are the warehouse manager for Vinnie’s Vinyls, a multi-location business specializing in vinyl records. Vinnies’s operates under a cost-based transfer structure and the warehouse supplies all stores with the records. The stores can purchase records only from the warehouse, and the warehouse can only sell to Vinnie’s stores. The manager of the West store has some concerns relating to the store’s financial performance and has asked for your help analyzing transfer costs. After calculating the operating income in dollars and the operating income percent, analyze the following financial information to determine costs that may need further investigation. (Hint: it may be helpful to perform a vertical analysis.)

Vinnie’s Vinyls, Income Statement, Month Ending March 31, 2018; Warehouse and West Store, respectively: Sales, $18,920, $43,860; Cost of goods sold, $9,082, $21,053; Gross profit, $9,838, $22,807; Selling expenses, $860, $2,752; Wages expense, $4,730, $15,351; Costs allocated from corporate, $2,838, $4,386; Total expenses, $8,428, $22,489; Operating income/(loss) $, $?, $?; Operating income/(loss) %, ?, ?.
EB 6.

LO 9.4As manager of the warehouse for Vinnie’s Vinyls, based on this analysis and the items you identified for further research, what is your advice to the manager of the West store? What might be some questions you want to ask or solutions you might propose to Vinnie’s management?

EB 7.

LO 9.4Discuss how, as warehouse manager for Vinnie’s Vinyls, you view the different rate of allocated costs the warehouse is being charged compared to the West store. Describe the implications of this. What steps could you take to solve this discrepancy? What alternatives would you consider, assuming management is willing to consider making changes in the rate?

EB 8.

LO 9.4Determine the operating income for Vinnie’s Vinyls’ West store, assuming the warehouse allocation is reduced to 10% of sales for the warehouse and the difference will be charged to the West store. Management has determined that the warehouse takes fewer corporate resources and the allocation to the West store was lower than it should have been.

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