Question

Bashar Company uses flexible budgets to control its selling expenses. Variable costs and their percentage relationship to sales are sales commissions 8%, advertising 3%, travel 2%, and delivery 3%. Budgeted costs for fixed selling expenses are the same as the actual costs. The actual selling expenses incurred in April 2021 by Bashar Company are as follows.

Variable Expenses OMR Fixed Expenses OMR
Sales commissions 13,000 Sales salaries 40,000
Advertising 5,000 Depreciation 5,000
Travel 4,500 Insurance 1,500
Delivery 4,000

Required:

Prepare a flexible budget performance report for June assuming that April sales were OMR150,000.

Question Two:

Read the following three paragraphs that discuss “the concept of responsibility accounting”:

“Responsibility accounting involves accumulating and reporting costs on the basis of individual manager who has authority to make day-to-day decisions. Under responsibility accounting the evaluation of manager’s performance is based only on matters directly under the manager’s control. It is also termed as profitability accounting.

In this system, the accountability is established according to the responsibility delegated to various levels of management and they are made responsible to give adequate feedback in terms of delegated responsibility. The basic idea behind responsibility accounting is that each manager’s performance should be judged by how he or she manages those items and only those items under his/her control.

The best way to encourage managers to achieve the desired level of performance is to measure their performance in comparison to budgeted results. Periodic comparisons of the actual costs, revenues and investments with the budgeted costs, revenues and investments relating to individual managers can help management in ascertaining their performance”.

Question Three:

The service division of Al Hinai Industries reported the following results for 2021.

OMR
Sales 500,000
Variable costs 300,000
Controllable fixed costs 75,000
Average operating assets 625,000

Required:
1. Based on the above data, compute the return on investment (ROI) for Al Hinai Industries. (4 marks)

2. What is the expected ROI if the average operating assets is reduced by OMR125,000, assuming that the controllable margin remains unchanged?
(2 marks)

3. Compute the controllable margin and the expected ROI if the sales are increased to OMR100,00 and the contribution margin percentage remains unchanged at 40%. (6 marks)

Answer 1

Explanation:

Fallon Company uses flexible budgets to control its selling expenses. Monthly sales are expected to range from $172,800 to $215,400. Variable costs and ...