The managing partner of the law firm Sewell, Bagan, and Clark, LLP, makes asset acquisition and disposal decisions for the firm. As managing partner, she supervises the partners in charge of the firm's three branch offices. Those partners have the authority to make employee compensation decisions. The partners' compensation depends on the profitability of their branch office. Vanessa Smith manages the City Branch, which has the following master budget and actual results for the year ended December 31. Master Budget Actual Results Billed hours 5,000 4,900 Revenue $ 250,000 $ 254,800 Controllable variable costs: Direct labor (120,000) (137,200) Variable overhead 190,000) (34,300) Contribution margin $ 90,000 $ 83,300 Controllable fixed costs: Rent (30,000) (30,000) Other administrative expenses (45,000) (42,000) Branch operating income $ 15,000 $ 11,300 REQUIRED 1. Assume that the City Branch is a profit center. Prepare a performance report that includes a flexible budget. Determine the variances between actual results, the flexible budget, and the master budget. 2. ACCOUNTING CONNECTION Evaluate Vanessa Smith's performance as manager of the City Branch. 3. Assume that the branch managers are assigned responsibility for capital expenditures and that the branches are thus investment centers. City Branch is expected to generate a desired ROI of at least 30 percent on average invested assets of $40,000. a. Compute the branch's return on investment and residual income. (Round percentages to two decimal places.) b. ACCOUNTING CONNECTION Using the ROI and residual income, evaluate Sewell, Bagan, and Clark, LLP City Branch Performance Report For the Year Ended December 31 Variance Flexible budget Variance Master budget Partner in Charge: Vanessa Smith Actual results Billed hours Revenue Controllable variable costs: Direct labor Variable overhead Contribution margin Controllable fixed costs: Rent Other administrative expenses Branch operating income 3 4 5 6 29 3. a. Actual Flexible Master ROL 30 31 32 33 34 35 36 Residual Income