The Medina and Ortiz Dental Clinic provides both preventive and orthodontic dental services. The two owners, Martin Medina and Olga Ortiz, operate the clinic as two separate investment centers: Preventive Services and Orthodontic Services. Each of them is in charge of one of the centers: Martin for Preventive Services and Olga for Orthodontic Services. Each month they prepare an income statement on the two centers to evaluate performance and make decisions about how to improve the operational efficiency and profitability of the clinic.

Recently they have been concerned about the profitability of the Preventive Services operations. For several months it has been reporting a loss. Shown below is the responsibility report for the month of May 2010.

In addition, the owners know that the investment in operating assets at the beginning of the month was $82,400, and it was $77,600 at the end of the month. They have asked for your assistance in evaluating their current performance reporting system.Instructions(a) Prepare a responsibility report for an investment center as illustrated in the chapter.(b) Write a memo to the owners discussing the deficiencies of their current reportingsystem.

Transcribed Image Text:

Difference from Actual Budget $ 40,000 $1,000 F Service revenue Variable costs: Filling materials Novocain 5,000 4,000 100 U 200 U 2,000 Supplies Dental assistant wages 250 F 2,500 -0- Utilities 50 U 500 Total variable costs 14,000 100 U Fixed costs: Allocated portion of receptionist's salary Dentist salary Equipment depreciation Allocated portion of building depreciation 3,000 200 U 10,000 500 U 6,000 -0- 15,000 1,000 U Total fixed costs 34,000 1,700 U $ (8,000) Operating income (loss) $ 800 U