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Unformatted text preview: CHAPTER 9 PROFIT PLANNING AND BUDGETING Questions, Exercises, Problems, and Cases: Answers and Solutions 9.1 See text or glossary at the end of the book. 9.2 A cost center is a responsibility center in which management is responsible only for costs. In a profit center, management is responsible for both costs and revenues. 9.3 An investment center is a responsibility center in which management is responsible for managing costs, revenues, and assets. A profit center is not responsible for assets. 9.4 Input/output relationships are not well defined in discretionary cost centers. Evaluation of such centers from accounting data is difficult and requires managerial judgment. 9.5 a. Program or course director; possibly the instructor. b. Manager of the print department. c. Dean of the business school. d. Dean of the business school and/or finance department chairperson. 9.6 General economic trends are important in forecasting sales in the airline industry. The overall health of the economy is an important factor affecting the extent of business travel. In addition, the health of the economy, safety concerns, and income levels affect the extent to which the general public travels by air. 9.7 The sales manager's reward is based on sales dollars; it isn't surprising the sales manager is concerned with revenues. If the company is concerned about profits, their commission should be based on a percentage of the profits generated by their sales as an incentive for the sales force to sell more high-profit items. 9.8 The flexible budget and master budget serve two different purposes. The master budget is a planning device, while the flexible budget is a control device. The master budget is the benchmark, or goal, based on all the information available at the time of preparation. It gives the profit goal for the 9-1 Solutions 9.8 continued. upcoming period, based on an estimated level of activity. Although the firm may aim for that estimated level of activity, it may achieve above or below it. The flexible budget is then used to determine what revenues and costs should have been , given the actual activity level attained for the period. The use of a flexible budget allows managers to separate volume variances from those due to differences in unit selling prices, unit variable costs, and fixed costs from the master budget....
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- Spring '11