Outdoor Specialists operates a chain of retail stores in the Midwest. The manager of each store reports to the region manager who reports to headquarters in Chicago, Illinois. The actual income statements for the Dayton, OH store, the Ohio region (including the Dayton Store) and the company as a whole (including the Ohio region) for the month ended October 31, 2009 are:

1)        Define a responsibility center and identify four common types, giving one example of each.

Answer:

Student responses will vary but should include the following points:

A responsibility center is a part, segment, or subunit of an organization whose manager is accountable for specified activities. The four most common types are the cost center, the revenue center, the profit center, and the investment center.

A cost center is a responsibility center in which a manager is accountable for costs ONLY. Examples include a shipping department or personnel department of a food manufacturer.

A revenue center is a responsibility center where managers are primarily accountable for generating sales revenue. Examples include sales regions for companies selling products nationwide.

A profit center is a responsibility center in which a manager is accountable for revenues and costs. Examples include a restaurant in an hotel or a linen department in a department store.

An investment center is a responsibility center in which a manager is accountable for investments, revenues, and costs. Examples include a separate division of a large company or a subsidiary of a large conglomerate.

2)        Outdoor Specialists operates a chain of retail stores in the Midwest. The manager of each store reports to the region manager who reports to headquarters in Chicago, Illinois. The actual income statements for the Dayton, OH store, the Ohio region (including the Dayton Store) and the company as a whole (including the Ohio region) for the month ended October 31, 2009 are:

	Dayton	Ohio	Companywide
Revenue   .........................................................	$74,450	$823,500	$2,100,000
Expenses:
Region manager/headquarters office ........	$     —	$  30,000	$  58,000
Cost of materials .......................................	40,550	435,950	903,500
Salary expense...........................................	19,150	207,550	559,500
Other Operating Expenses ......................	6,800	85,950	436,500
Total expenses ..............................................	66,500	759,450	1,957,500
Operating income ........................................	$ 7,950	$  64,050	$ 142,500

Budgeted amounts for the month ended October 31, 2009 were as follows:

	Dayton	Ohio	Companywide
Revenue...............................................	$81,200	$884,850	$2,225,000
Expenses:
Region manager/headquarters office .........	$        —	$  32,800	$  59,000
Cost of materials ................................	43,200	481,700	986,000
Salary expense ....................................	19,400	221,000	547,500
Other operating expenses ................	7,600	87,250	447,000
Total expenses ....................................	70,200	822,750	2,039,500
Operating income ..............................	$  11,000	$  62,100	$    185,500

Prepare Responsibility Accounting Reports for 1) the Dayton Store, 2) the Ohio region, and 3) the company as a whole.

Answer: 1)

Outdoor Specialists
Responsibility Accounting Performance Report
For the Month Ended October 31, 2009
	DAYTON
Revenues and Expenses:	BUDGET	ACTUAL	VARIANCE: FAVORABLE (UNFAVORABLE)
Revenue	$ 81,200	$ 74,450	$( 6,750)
Expenses:
Cost of materials	43,200	40,550	2,650
Salary expense	19,400	19,150	250
Other operating expenses	7,600	6,800	800
Total expenses	70,200	66,500	3,700
Operating income	$  11,000	$ 7,950	$ (3,050)

2)

	OHIO
Operating Income of Stores and Region Manager’s Office Expense	BUDGET	ACTUAL	VARIANCE: FAVORABLE (UNFAVORABLE)
Region Manager’s office expense	$ (32,800)	$ (30,000)	$ 2,800
Dayton	11,000	7,950	(3,050)
Other Ohio stores	83,900a	86,100b	2,200
Operating income	$ 62,100	$ 64,050	$ 1,950

aOhio ($62,100) + Region manager’s office ($32,800) – Dayton ($11,000) = $83,900 bOhio ($64,050) + Region manager’s office ($30,000) – Dayton ($ 7,950) = $86,100 3)

	COMPANYWIDE
Operating Income of Regions and Headquarter’s Office Expense	BUDGET	ACTUAL	VARIANCE: FAVORABLE (UNFAVORABLE)
Headquarter’s office expense	$(59,000)	$( 58,000)	$   1,000
Ohio	62,100	64,050	1,950
Stores in other regions	182,400c	136,450d	(45,950)
Operating income	$ 185,500	$ 142,500	$(43,000)

c Companywide ($185,500) + Headquarter’s office ($59,000) – Ohio ($62,100) = $182,400

d  Companywide ($142,500) + Headquarter’s office ($58,000) – Ohio ($64.050) = $136,450