Tutorial Introductory Managerial Accounting

6th Session – Budgetary Control and Responsibility Accounting – December 4th, 2018

1. The Sales Manager of Home Appliances Division in IKEA was given the static budget report for
selling expenses in the period of December 2017.

IKEA Company
Home Appliances Division
Budget Report
For the Month Ended December 31, 2017

As a result, he was congratulated for his outstanding sales performance. However, he was also
admonished because the costs of Home Appliances Division are not in control. Therefore, he knew
something was incorrect with the budget report that he had been provided. He comes to you for
advice to this problem.

(a) Prepare a budget report based on flexible budget data.

(b) Should he have been admonished? Explain your answer.

Kenny Corporation is a newly formed company focusing on high-speed internet service for home
and business. Kenny Smith, the owner had divided the company into two major segments: Home
internet service and business internet service. Each segment has its supervisor while utilizing the
same basic selling and administrative services.

Kenny wanted to create a performance reporting system to help him recognize each segment’s
profitability. Here is the information concerning home internet service segment for the first
quarter of 2017.

Budget Actual
Service revenue $ 25,000 $26,200
Allocated portion of:
Building depreciation 11,000 11,000
Advertising 5,000 4,200
Billing 3,500 3,000
Property taxes 1,200 1,000
Material and supplies 1,600 1,200
Supervisory salaries 9,000 9,500
Insurance 4,000 3,900
Wages 3,000 3,250
Gas and oil 2,800 3,400
Equipment depreciation 1,500 1,300

Instructions

(a) Prepare a responsibility report for the first quarter of 2017 for the home internet service
segment
(b) Write a memo to the owner concerning principles we should aware in preparing
performance reports