Read the footnote referring to Home Depot’s decision to close all of its remaining big box stores in China. Identify the incremental, sunk, and opportunity costs associated with this decision. Assume that any cost savings will be invested elsewhere in more productive stores.
CHINA STORE CLOSINGS
In fiscal 2012, the Company closed its remaining seven big box stores in China. As a result of the closings, the Company recorded a total charge of $145 million, net of tax, in fiscal 2012. Inventory markdown costs of $10 million are included in Cost of Sales, and $135 million of costs related to the impairment of Goodwill and other assets, lease terminations, severance and other charges are included in SG&A in the accompanying Consolidated Statements of Earnings.
The cost to Swank Company of manufacturing 15,000 units of a particular part is $135,000, of which $60,000 is fixed and $75,000 is variable. The company can buy the part from an outside supplier for $6 per unit. Fixed costs will remain the same regardless of Swank’s decision. Should the company buy the part or continue to manufacture it? Prepare a comparative schedule in the format illustrated in Exhibit 21-6.
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?