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To respond to increased competition and a reduction in profitability the nationwide law firm of O’Brien New & Cave recently instituted a responsibility accounting system One of the several

To respond to increased competition and a reduction in profitability, the nationwide law firm of O’Brien New & Cave recently instituted a responsibility accounting system. One of the several responsibility centers established was the Civil Litigation Division. This division is treated as a cost center for control purposes. In the first year (2010) after the new system was established, the responsibility report for the Civil Litigation Division contained the following comparisons:

 

Budget

Actual

Variance

Variable costs

 

 

 

Professional labor

$3,000,000

$ 2,820,000

$180,000 F

Travel

150,000

120,000

30,000 F

Supplies

300,000

270,000

30,000 F

Fixed costs

 

 

 

Professional labor

1,200,000

1,215,000

15,000 U

Facilities

750,000

795,000

45,000 U

Insurance

240,000

234,000

6,000 F

Total

$5,640,000

$5,454,000

$186,000 F

For 2010, the division projected it would handle 3,000 cases, but its actual case load was 2,970.

a. What are the major weaknesses in the preceding responsibility report?

b. Recast the responsibility report in a more meaningful format for cost control evaluation.

c. If O’Brien New & Cave uses a management-by-exception philosophy, which costs are likely to receive additional investigation? Explain.

Jun 24 2020 View more View Less

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