The Real Estate Products Division of McKenzie Co. is operated as a profit center. Sales for the division were budgeted for 2019 at $1,250,000. The only variable costs budgeted for the division were cost of goods sold ($610,000) and selling and administrative ($80,000). Fixed costs were budgeted at $130,000 for the cost of goods sold, $120,000 for selling and administrative, and $95,000 for noncontrollable fixed costs.

Actual results for these items were:

Sales $1,175,000

Cost of goods sold Variable 545,000

Fixed 140,000

Selling and administrative Variable 82,000

Fixed 100,000

Noncontrollable fixed 105,000

Prepare a responsibility report for the Real Estate Products Division for 2019.

Answer and Explanation:

The Preparation of responsibility report for the Real Estate Products Division is following below:-

Particulars Budgeted Actual Difference Favorable/

Unfavorable

Sales $1,250,000 $1,175,000 $75,000 Unfavorable

(Sales of Budgeted - Actual)

Variable cost ($610,000) $545,000 $65,000 Favorable

(variable cost of Budgeted - Actual)

Selling and

administration ($80,000) $82,000 $2,000 Unfavorable

(selling and admin. of Budgeted - Actual)

Total variable

cost $690,000 $627,000 $63,000 Favorable

Contribution

margin $560,000 $548,000 $12,000 Unfavorable

(Sales - Total variable cost)

Fixed cost

Cost of goods

sold $130,000 $140,000 $10,000 Unfavorable

Selling and

administration $120,000 $100,000 $20,000 Favorable

Total fixed cost $250,000 $240,000 $10,000 Favorable

(Fixed cost of goods sold + Selling and administration and the difference of these two)

Net operating

income $310,000 $308,000 $2,000 Unfavorable

Therefore to reach the net operating income we will simply deduct the Contribution margin and total fixed cost.