week 3

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Week 2: Assignment from the Textbook

Ex. 20.1

Listed below are nine technical accounting terms introduced in this chapter:

Variable costs Relevant range Contribution margin
Break-even point Fixed costs Semivariable costs
Economies of scale Sales mix Unit contribution margin

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.

a. The level of sales at which revenue exactly equals costs and expenses.
Break-even point
b. Costs that remain unchanged despite changes in
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B. Ex. 22.9

The president of Cold Moo Ice Cream Company, a chain of ice cream stores in the Midwest, was unhappy with the actual six-month profit figures for the company recently prepared by the CFO. The president asked the CFO for a profit breakdown, by store, of the actual six-month results. When the president received the report, he was extremely upset and called the CFO into his office. The president stated, "These reports show that each store in the chain is profitable, but our company results are unprofitable! How can this be?" The CFO pointed out that each store was allowed to set prices for ice cream based on its cost structure. However, the stores' cost structures did not include headquarters costs or the costs of advertising and delivery of products.

What are the three characteristics for operating a successful responsibility accounting system?
Consider whether the accounting system at Cold Moo Ice Cream Company includes the three characteristics of a successful responsibility accounting system. How could the responsibility accounting system at Cold Moo be improved?

Three characteristics of the successful operation of a responsibility accounting system include: Budgets are created for each responsibility center, measures the performance of each responsibility center, and preparation of timely performance reports.

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