Characteristics for Operating Successful Responsibility
The president of Cold Moo Ice Cream Company, a chain of ice cream stores in the Midwest, was
unhappy with the actual six-month profit 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 costs 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 characteristics
of a successful responsibility accounting system. How could the responsibility accounting
system at Cold Moo be improved?