Module 4 Slpresponsibility Accounting For Cost Profit And Investmen ✓ Solved

Module 4 - SLP RESPONSIBILITY ACCOUNTING FOR COST, PROFIT AND INVESTMENT CENTERS The following data pertain to the operating revenues and expenses for California, Inc. for 20XX. Los Angeles (LA) Segment San Francisco (SF) Segment Total Sales 0,000 0,000 0,000 Variable expenses 96,,,000 Direct fixed expenses 24,,,000 Indirect fixed expenses 72,000 Assets (investment) used to generate operating income for the two segments are shown below. Los Angeles Segment San Francisco Segment Assets directly used by and identified with the segment 0,000 0,000 a. Prepare a segmented income statement in good format showing the contribution margin of each segment, the contribution to indirect expenses of each segment, and the total income of California, Inc. b.

Determine the return on investment for evaluating (1) the earning power of the entire company and (2) the performance of each segment. c. Comment on the results of part (b). SLP Assignment Expectations Show computations in good format and explain answers as required. Excel is a great tool to make computations and present financial information in an easy to understand format. Write comments below the computations in Excel.

Submit only the Excel file. Both content and the clarity of the presentation will be evaluated for grading purposes. Module 4 - Case RESPONSIBILITY ACCOUNTING FOR COST, PROFIT AND INVESTMENT CENTERS Assignment Overview Review the three components in the background material to answer the questions and make computations relating to responsibility accounting. Case Assignment Short-Answer Questions 1. What is the fundamental principle of responsibility accounting?

2. List five important factors that should be considered in designing reports for a responsibility accounting system. 3. How soon should accounting reports be prepared after the end of the performance measurement period? Explain.

4. Name and describe three types of responsibility centers and list their main characteristics. 5. Give five real-world examples of at least two of the types of responsibility centers. 6.

Many organizations limit the number of expense (cost) centers. a. List three reasons for wanting to limit cost centers. b. List three ideas for eliminating or reducing the size of an existing cost center. 7. What is the connection between the extent of decentralization and the investment center concept?

8. Give some of the advantages of decentralization. 9. Differentiate between a direct cost and an indirect cost of a segment. What happens to these categories if the segments to which they are related are eliminated?

Part II Real-World Example Review the background material and do some research to learn about organizations using responsibility centers as part of an organizational structure. Information can be found in the news, research papers, and on investment sites. Another option is to locate the financial statements for a company, make some assumptions, and prepare your own assessment of the organizational structure. Describe the situation and the results. Show computations when appropriate.

Assignment Expectations Part I Write 3–5 sentences for each question. Use Word and make a separate submission for this part. Part II Write an essay (300–500 words). Show sources when appropriate. APA format is suggested, but not required.

Paper for above instructions

Part I: Short-Answer Questions

1. Fundamental Principle of Responsibility Accounting
Responsibility Accounting is centered on the idea that managers should be held accountable for the financial outcomes over which they have control. The primary principle is that performance should be evaluated based on the results of decisions made by individual managers, fostering a more transparent and responsible management atmosphere (Brealey, Myers, & Allen, 2017). This principle promotes measurement, accountability, and authority while encouraging managers to optimize resource utilization within their specific areas.
2. Factors in Designing Reports for a Responsibility Accounting System
Designing reports for a responsibility accounting system should consider the following factors:
- Relevance: Reports should include data that are pertinent to the decision-making process (Horngren, Sundem, & Stratton, 2013).
- Timeliness: Reports must be generated quickly enough to be relevant for decision-making (Baker & Baker, 2016).
- Accuracy: Data presented should be precise and reflective of reality, ensuring that management can make informed decisions.
- Consistency: Report formats and metrics should be consistent over time to track performance effectively (Kaplan & Atkinson, 2015).
- Flexibility: The reporting system should be adaptable to changes in the organization’s operations or external environment.
3. Timing of Accounting Reports
Accounting reports should ideally be prepared promptly after the end of the performance measurement period, typically within a week or month, depending on the organizational size (Brigham & Ehrhardt, 2017). This allows management to make timely decisions based on current financial performance, rather than relying on outdated information. Swift report generation supports active management engagement and quick responsiveness to financial trends.
4. Types of Responsibility Centers
There are three primary types of responsibility centers:
- Cost Centers: These centers are responsible for managing expenses and operations without direct revenue generation. Performance is assessed based on cost control.
- Profit Centers: These segments generate revenue and manage costs, thus being evaluated on their profitability. Profit centers have the authority to influence both revenues and expenses.
- Investment Centers: These units are not only responsible for generating profits but also manage assets. Their performance is typically determined based on return on investment (ROI) (Drury, 2018).
5. Real-World Examples of Responsibility Centers
- Cost Centers: An example could be a manufacturing department focused on minimizing production costs without impacting product quality (e.g., assembly line operations in automotive manufacturing like Toyota).
- Profit Centers: A retail branch of a large department store chain, such as Macy's, is a profit center, as it directly earns revenue and incurs costs related to its operations.
- Investment Centers: A subsidiary of a multinational corporation (like Google's cloud computing division) often functions as an investment center, responsible for profits and asset management.
6. Limiting Expense (Cost) Centers
a. Reasons to Limit Cost Centers:
- To streamline decision-making and reduce bureaucratic hurdles.
- To minimize the complexity of the organizational structure, allowing for clearer accountability and control.
- To focus on strategic cost management that drives efficiency and improves profitability (Anthony & Govindarajan, 2007).
b. Ideas for Reducing an Existing Cost Center:
- Assessing and eliminating redundant roles or functions within the center.
- Implementing technology systems to automate repetitive tasks and improve efficiency.
- Enhancing training programs to improve staff productivity and effectiveness.
7. Decentralization and Investment Center Concept
The connection between decentralization and the investment center concept lies in the delegation of authority. In a decentralized environment, managers are empowered to make decisions regarding their segments, including investment appropriations and resource allocations, promoting a robust management structure that drives performance (Simons, 2014).
8. Advantages of Decentralization
- Increased responsiveness to local conditions or market demands, allowing quicker decision-making.
- Enhanced manager accountability, fostering a sense of ownership and motivation (Garrison, Noreen, & Brewer, 2018).
- Developmental opportunities for managers, helping them gain experience and prepare for higher-level responsibilities.
9. Direct vs. Indirect Costs
Direct costs can be traced explicitly to segments (e.g., raw materials for production), while indirect costs are not directly attributable to a specific segment (e.g., corporate overhead). If a segment that incurs indirect costs is eliminated, those indirect costs may still persist and need to be absorbed by remaining segments. Conversely, direct costs will cease alongside the eliminated segment.
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Part II: Real-World Example of Responsibility Centers

In the competitive landscape of fast food chains, McDonald's Corporation stands out for effectively utilizing responsibility centers to enhance operational efficiency and profitability. Within the corporate structure, McDonald's exemplifies the use of cost, profit, and investment centers to streamline operations and drive financial results.
The franchise model of McDonald's allows individual restaurant operators to function as profit centers, where they are responsible for driving sales and managing operational costs. Each franchise operates by seeking to maximize profitability, closely monitoring not just revenue from meals but controlling costs related to ingredients, employee wages, and utility expenses. This decentralized structure empowers restaurant managers to respond rapidly to local market conditions, such as seasonal promotions or shifts in consumer tastes (McDonald's Corporation, 2022).
For instance, during the COVID-19 pandemic, many McDonald's franchises quickly pivoted to offer contactless delivery and outdoor dining options, responding to customer needs while managing costs associated with reduced dine-in capacity. These innovations directly contributed to maintaining profitability during a challenging economic climate.
On the corporate level, McDonald's functions as an investment center, where top executives are charged with overseeing the allocation of corporate resources—such as marketing budgets and new store openings. The corporate entity evaluates investment performance through metrics like return on investment (ROI) and sales growth (McDonald's Corporation, 2022).
By setting performance benchmarks and focusing on both short-term profitability and long-term growth strategies (such as sustainable sourcing), McDonald's creates accountability and performance clarity for every facet of its expansive operational landscape.
Moreover, the coordination between the corporate headquarters and its various franchises embodies the essence of decentralization in responsibility accounting. Lower-level managers are given greater autonomy, ensuring that decisions made align closely with local demands while adhering to broader corporate objectives. This structure benefits McDonald's by driving innovation at the franchise level, leading to enhanced customer satisfaction and loyalty.
In conclusion, McDonald's corporate structure and strategic reliance on responsibility centers exemplify best practices in modern organizational management. Its approach not only promotes operational efficiency but also enhances profitability across its extensive network of franchises, making it a compelling case study in responsibility accounting.

References

1. Anthony, R. N., & Govindarajan, V. (2007). Management Control Systems. McGraw-Hill Education.
2. Baker, H. K., & Baker, S. G. (2016). Understanding Financial Statements. Wiley.
3. Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance. McGraw-Hill Education.
4. Brigham, E. F., & Ehrhardt, M. C. (2017). Financial Management: Theory & Practice. Cengage Learning.
5. Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
6. Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
7. Horngren, C. T., Sundem, G. L., & Stratton, W. O. (2013). Introduction to Management Accounting. Pearson Education.
8. Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson Education.
9. McDonald's Corporation. (2022). Annual Report 2021. Retrieved from [McDonald's Investor Relations](https://www.mcdonalds.com/us/en-us/investors/financial-information/annual-reports.html).
10. Simons, R. (2014). Seven Strategy Questions: A Simple Approach for Better Execution. Harvard Business Review Press.