Brief Exercise 22.9

Responsibility Accounting system Characteristics

The president of Cold Moo Ice Cream Company, a chain of ice cream store in the Midwest, was unhappy with the actual six-month figures for the company recently prepared by the CFO. The president asked the CFO for a profit breakdown, by store, of the actual six-month results. When the president received the report, he was extremely upset and called the CFO into his office. The president stated, "These reports show that each store in the chain is profitable, but our company results are unprofitable! How can this be?" The CFO pointed out that each store was allowed to set prices for ice cream based on its cost structure. However, the stores' cost structures did not include headquarters costs or the cost of advertising and delivery of products.

What are the three characteristics for operating a successful responsibility accounting system? Consider whether the accounting system at Cold Moo Ice Cream Company includes the three chacteristics of a successful responsibility accounting system. How could the responsibility accounting system at Cold Moo be improved?