Posted: January 6th, 2017

How could the responsibility accounting system at Cold Moo be improved?

Brief Exercise 22.9

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.

1.      What are the three characteristics for operating a successful responsibility accounting system?

2.      Consider whether the accounting system at Cold Moo Ice Cream Company includes the three characteristics

of a successful responsibility accounting system.

3.      How could the responsibility accounting system at Cold Moo be improved?