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.

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