Arctica manufactures snowmobiles and ATVs. These products are made in different departments, and each department has its own manager. Each responsibility performance report only includes those costs that the particular department manager can control: raw materials, wages, supplies used, and equipment depreciation. Budget Actual Snowmobile ATV Combined Snowmobile ATV Combined Raw materials $ 21,190 $ 29,200 $ 50,390 $ 21,120 $ 30,520 $ 51,640 Employee wages 12,100 22,200 34,300 12,530 22,940 35,470 Dept. manager salary 6,000 6,900 12,900 6,100 6,100 12,200 Supplies used 5,170 2,600 7,770 4,870 2,620 7,490 Depreciation-Equip. 7,700 14,200 21,900 7,700 14,200 21,900 Utilities 530 710 1,240 500 670 1,170 Rent 7,400 8,000 15,400 7,000 8,000 15,000 Totals $ 60,090 $ 83,810 $ 143,900 $ 59,820 $ 85,050 $ 144,870 Prepare a responsibility accounting report for the snowmobile department. (Under budget amounts should be indicated by a minus sign.)

Responsibility accounting is a system process where the business activities are divided into various departments, product line, branches, and divisions. Each department has its own set of goals. The goals of the department align with the organization’s goals. The department manager should manage the activities and the subordinates to achieve the objectives of the department.

Controllable cost:

Costs that can be managed and controlled by the management's action are considered as a controllable cost. These costs are partly controllable as the management cannot control the entire aspect of any cost. Departmental managers are responsible for the cost management of their specific department. The cost that the manager or the supervisor can control and reduce to a minimal level while maintaining efficiency and effectiveness is considered as a controllable cost.

Example: Direct and indirect material, direct and indirect labor (supervisor), depreciation on equipment.

Uncontrollable cost:

Costs that are out of the control of the management are considered as an uncontrollable cost. Costs that cannot be controlled by the manager's or supervisor's actions are considered as an uncontrollable cost.

The difference between the controllable and uncontrollable is the authority of the manger to control the cost. The expenses and costs that are under the control of the manger of the department are considered as a controllable cost and vice versa.

Example: Insurance, depreciation, repairs & maintenance, rent.

Prepare a responsibility accounting report for the snowmobile department:

In the given case, raw material, employee wages, supplies used, depreciation on equipment are controllable cost so these should be considered in the preparation of the responsibility accounting report.

Following is the responsibility accounting report for the snomobile department:

Responsibility Accounting Report

Snowmobile department

Particulars Budget Actual Over/Under budget

(a) (b) (c = b - a)

Raw material $21,190 $21,120 ($70)

Employee wages $12,100 $12,530 $430

Supplies used $5,170 $4,870 ($300)

Depreciation

(Equipment) $7,700 $7,700 $0

Total $46,160 $46,220 $60

Therefore, the total actual cost is $46,220 and the budgeted cost is $46,160. The total over-budgeted cost is $60.

Learn more:

1. Learn more about the span of control

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2. Learn more about the percentage of sales method

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3. Learn more about the role of money

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Answer details:

Grade: Senior School

Subject: Cost Accounting

Chapter: Responsibility Accounting

Keywords: Arctica manufactures, snowmobile and ATVs, manager, raw materials, wages, supplies used, and equipment depreciation, budget, actual, total, employee wages, dept. manager salary, supplies used, depreciation equipment, responsibility accounting report.