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Unformatted text preview: From the Financial and Management Accounting text: P3 from Chapter 21 and P1, P2, and P4 from Chapter 22 Evaluating Profit and Investment Center Performance P 3. Bobbie Howell, the managing partner of the law firm Howell, Bagan, and Clark, LLP, makes asset acquisition and disposal decisions for the firm. As managing partner, she supervises the partners in charge of the firms three branch offices. Those partners have the authority to make employee com- pensation decisions. The partners compensation depends on the profitability of their branch office. Victoria Smith manages the City Branch, which has the following master budget and actual results for the year: Master Budget Actual Results Billed hours 5,000 4,900 Revenue $250,000 $254,800 Controllable variable costs Direct labor 120,000 137,200 Variable overhead 40,000 34,300 Contribution margin $90,000 $83,300 Controllable fixed costs Rent 30,000 30,000 Other administrative expenses 45,000 42,000 Branch operating income 15,000 11,300 Required 1. Assume that the City Branch is a profit center. Prepare a performance report that includes a flexible budget. Determine the variances between actual results, the flexible budget, and the master budget. 2. Evaluate Victoria Smiths performance as manager of the City Branch. 3. Assume that the branch managers are assigned responsibility for capital expenditures and that the branches are thus investment centers. City Branch is expected to generate a desired ROI of at least 30 percent on average invested assets of $40,000....
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This note was uploaded on 06/21/2011 for the course ACCOUNTING 0116001 taught by Professor Bloom during the Spring '07 term at Santa Fe College.
- Spring '07