Question

UrLink Company is a newly formed company specializing in high-speed Internet service for home and business. The owner, Lenny Kirkland, had divided the company into two segments: Home Internet Service and Business Internet Service. Each segment is run by its own supervisor, while basic selling and administrative services are shared by both segments.

Prepare and discuss a responsibility report.

Lenny has asked you to help him create a performance reporting system that will allow him to measure each segment’s performance in terms of its profitability. To that end, the following information has been collected on the Home Internet Service segment for the first quarter of 2020.
   Budget    Actual
Service revenue    $25,000    $26,200
Allocated portion of:       
Building depreciation    11,000    11,000
Advertising    5,000    4,200
Billing    3,500    3,000
Property taxes    1,200    1,000
Material and supplies    1,600    1,200
Supervisory salaries    9,000    9,500
Insurance    4,000    3,900
Wages    3,000    3,250
Gas and oil    2,800    3,400
Equipment depreciation    1,500    1,300
Instructions

    a. Prepare a responsibility report for the first quarter of 2020 for the Home Internet Service segment.
    b. Write a memo to Lenny Kirkland discussing the principles that should be used when preparing performance reports.

Answer 1

ANSWER:

(a)

URLINK SOLUTIONS
Home Internet Services Segment
Responsibility Report
For the Month Ended January 31, 2020

  

		Budget		Actual		Difference Favorable F Unfavorable U
Service revenue		R$25,000		R$26,200		R$1,200 F
Variable costs:
Material and supplies		1,600		1,200		400 F
Wages		3,000		3,250		250 U
Gas and oil		2,800		3,400		600 U
Total variable costs		7,400		7,850		450 U
Contribution margin		17,600		18,350		750 F
Controllable fixed costs:
Supervisory salaries		9,000		9,500		500 U
Insurance		4,000		3,900		100 F
Equipment depreciation		1,500		1,300		200 F
Total controllable fixed costs		14,500		14,700		200 U
Controllable margin		R$ 3,100		R$ 3,650		R$ 550 F

(b)

MEMO

TO: Lenny Kirkland

FROM: Student

SUBJECT: The Reporting Principles of Performance Reports

When evaluating the performance of a company’s segments, the performance reports should:

1. Contain only data that are controllable by the segment’s manager.

2. Provide accurate and reliable budget data to measure performance.

3. Highlight significant differences between actual results and budget goals.

4. Be tailor-made for the intended evaluation.

5. Be prepared at reasonable intervals.

I hope these suggested guidelines will be helpful in establishing the performance reporting system to be used by UrLink Solutions.