Page 213 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Refer to the chart below to understand the working of OTL Cuisine Inc. The blocks in
the organization chart indicate the character of performance/responsibility evaluation that
is germane to each position. The Chief Executive Officer reports to the owners, and the
owners are primarily interested in their return on investment. Three vice presidents report
to the CEO:
1. The VP of operations is responsible for the overall investment in operations, which is
driven heavily by the combined profits of each store. The VP of Operations oversees
procurement, store management, and catering management.
(a) The Procurement Manager oversees purchasing of food and dishware.
(i) The Procurement activities are evaluated as cost centers, relying on
budgets and standard costs to control activities.
(b) The Store and Catering managers oversee supervisors from each location.
(i) The Store and Catering Managers are responsible for producing profits,
and are evaluated accordingly.
2. The VP of Finance is viewed and evaluated as a cost center.
3. The VP of Real Estate is responsible for site acquisition and construction. Although
the activities are largely viewed in the context of a cost center, there is an expected
rate of return for each new real estate investment. Therefore, the VP of Real Estate is
evaluated for cost control and return on investments.

Manager of Procurement
(Cost Center)
VP, Operations
(Mutiple Evaluation
Base) Store Management
(Profit Center)
VP, Finance
CEO (Multiple Evaluation
(Investment center) Base)

Catering Management
(Profit Center)
VP, Real Estate
(Multiple Evaluation
Base)

Location 1, Location A,
Location 2, Location B, Food Supervisor
…. …. (Cost Center)
(Profit Center) (Profit Center)
Dishware Supervisor
(Cost Center)

The accounting system of the company supports preparation of an accounting report for
each responsibility center. This information is essential to monitor, control, and direct
each business unit. Each individual store has a customized performance report. Often, the
reports provide a comparison between budgeted and actual data, with the difference being
reported as a variance from budget. These performance reports are consistent with the
organizational structure of the firm. At successively higher levels within the organization,
the reports tend to include less transaction specific detail and more combinations of
business units.
Contd…

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