Question: What is the purpose of a responsibility accounting system?
The major purpose of a responsibility accounting system is to fix the cost control.
The responsibility accounting system is used in the managerial accounting branch in which each unit or manager is held responsible and accountable for their assigned and performed tasks.
Business entities exercise the responsibility accounting system to delegate the responsibilities associated with the revenues and costs. The major purpose of a responsibility accounting system is to apply cost control techniques for generating more revenues.
Using ROI and RI to evaluate investment centers
Consider the following condensed financial statements of Pure Life, Inc. The company’s target rate of return is 30%.
PURE LIFE, INC. Income Statement For the Year Ended December 31, 2018 Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses 2,300,000 2,000,000 300,000 (34,000) 266,000 3,700,000 $ 6,000,000 Operating Income Interest Expense Other Income and (Expenses): Income Before Income Tax Expense Income Tax Expense Net Income 93,100 $ 172,900
PURE LIFE, INC. Comparative Balance Sheet As of December 31, 2018 and 2017 Assets 2018 2017 Cash Accounts Receivable Supplies Property, Plant, and Equipment, net Patents, net Total Assets Accounts Payable Short-term Notes Payable Long-term Notes Payable Common Stock, no Par Retained Earnings Total Liabilities and Stockholders’ Equity Liabilities and Stockholders’ Equity $ 62,000 200 204,000 101,000 $ 394,000 26,800 $ 76,000 600 305,000 163,000 $ 606,000 61,400 52,000 $ 31,000 126,500 169,000 15,500 $ 394,000 148,000 $ 29,000 196,000 205,500 27,500 $ 606,000
1. Calculate the company’s ROI. Round all of your answers to four decimal places.
2. Calculate the company’s profit margin ratio. Interpret your results.
3. Calculate the company’s asset turnover ratio. Interpret your results.
4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results.
5. Calculate the company’s RI. Interpret your results.
94% of StudySmarter users get better grades.Sign up for free