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Responsibility accounting, interdependent units (LO2, LO3). AlarmTek makes and sells home security systems. It has two divisions?a production division and a marketing division. The company treats the production division as a cost center and the marketing division as a revenue center. It evaluates the production division by comparing the actual cost performance to a flexible budget. Similarly, it evaluates the marketing division by comparing actual revenues less marketing and customer care costs to the corresponding budget. The following presents budgeted and actual performance for a recent year.

Required:

a.The production manager was very happy with his performance, but the marketing manager was not at all pleased. Explain why by evaluating their respective performances.

b. The marketing manager made the following complaint to the head office:"I helped sell more units, but the quality was poor. Just look at my marketing costs. I did not spend any more in sales calls and promotions compared to last year. The only reason my costs are so high is because my department had to offer more after-sales service to handle a lot of customer complaints. I even lost out on revenues. I think my esteemed colleague on the production side is cutting corners to come un-der the cost budget. I think you have to change the way you evaluate performance."Do you believe the marketing manager might have a legitimate case?

c.How could you improve the performance measurement and evaluation system to avoid such conflicts in the future?

CoursHeroTranscribedText: Budget Actual Production volume (units) 40,000 45,000 Revenues $8,000,000 $8,550,000 Variable production costs $4,000,000 $4,050,000 Total fixed production costs 800,000 $780,000 Variable marketing and customer care costs 400,000 640,000 Fixed marketing and customer care costs 250,000 450,000 Profit before taxes $2,550,000 2,630,000

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