solve question 4 using question 3 financial information 3. The service division
ID: 2516426 • Letter: S
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solve question 4 using question 3 financial information
3. The service division of Smithberg Industries reported the folowing results for 2016. Sales Variable Costs Controllable Fixed Costs Average Operating Assets5825,000 $800,000 $500,000 $125,000 Compute the controliable margin and the return on investment for 2016. Management is considering the following independent courses of action in 2017 in order to maximize the return on investment for this division. (Based on original financial information above) 4. Compute the controllable margin and the expected ROi for each proposed alternative. a) Reduce average operating assets by $125,000 with no change in controllable margin. Increase sales by $100,000 with no change in the contribution margin percentage (contribution margin ratio). b)Explanation / Answer
3)Calculation of controllable margin and return on investment: Particulars Amount($) Sales 800000 Less: Variable cost 500000 Contri bution(800000-500000) 300000 Less:Controllable Fixed Cost 125000 Controllable margin (300000-125000) 175000 Controllable margin is $175000 ROI= Controllable margin/average operating assets*100 =175000/825000*100=21.21% 4) (a) Cotrollable margin will remain same that is $175000 Average operating assets=825000-125000=$700000 ROI= 175000/700000*100=25% ROI is 25% (b) Contribution margin ratio= Contribution/sales*100=300000/800000*100=37.5% Particulars Amount($) Sales (800000+100000) 900000 Less: Variable cost(900000-337500) 562500 Contri bution(900000*0.375) 337500 Less:Controllable Fixed Cost 125000 Controllable margin (337500-125000) 212500 Controllable margin is $212500 ROI= Controllable margin/average operating assets*100 =212500/825000*100=25.76%
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