Yuma foods acquire Aldo's tortillas several years ago. Aldo's continued to operate as an independent company, except that Yuma foods has exclusive authority over capital investments, production quantity, and pricing decisions because Yuma has been Aldo's only customer since the acquisition. Yuma uses return on investment to evaluate the performance of Aldo's manager. The most recent performance report follows.
- Yuma foods
- Performance report for Aldo's tortillas
- For the year ended June 30
- Sales $6000
- Variable cost of goods sold (3000)
- Variable administrative expenses (1000)Variable corporate expenses %of sales (600)
- Contribution margin $1,400
- Fixed overhead includes depreciation of $100 (400)
- Fixed administrative expenses (500)
- Operating income $500
- Average assets invested $5,500
- Return on investment 9.09%*
1. Analyze the items listed in the performance report, and identify the items that Aldo controls and those that Yuma controls. In your opinion, what types of responsibility center is Aldo's Tortillas? Explain your response.
2. Prepare a revised performance report for Aldo's Tortillas and an accompanying memo to the president of Yuma Foods that explains why it is important to change the content of the report. Cite some basic principles of responsibility accounting to support your recommendation.