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

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 Plumbing Services segment for the first quarter of 2014.

Budget Actual Service revenue $25,000 $26,000 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 3,600 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 fi rst quarter of 2014 for the Home Plumbing Services segment.

(b) Write a memo to Lenny Kirkland discussing the principles that should be used when preparing performance reports.

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