Torres Company accumulates the following summary data for the year ending December 31, 2020, for its Water Division, which it operates as a profit center: sales—$2,076,800 budget, $2,240,000 actual; variable costs—$1,002,000 budget, $1,054,100 actual; and controllable fixed costs—$298,600 budget, $303,800 actual.

Prepare a responsibility report for the Water Division for the year ending December 31, 2020.

Answer and Explanation:

The Preparation of responsibility report is shown below:-

                                          Responsibility report

                                           Torres Company

                                   For the year ended December 31, 2020

Particulars           Budgeted             Actual                        Difference

Sales a              $2,076,800            $2,240,000           $163,200 Favorable

Variable costs b $1,002,000          $1,054,100              $52,100 Unfavorable

Contribution

margin                 $1,074,800         $1,185,900              $111,100 Favorable

c = a - b

Controllable

fixed costs d       $298,600            $303,800                $5,200 Unfavorable

Controllable

margin               $776,200              $882,100             $105,900 Favorable

e = c - d

Therefore if budgeted is higher than actual then it will become Favorable and if actual is higher than budgeted than it will become Unfavorable.

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