Optimus Company manufactures a variety of tools and industrial equipment. The co
ID: 2552637 • Letter: O
Question
Optimus Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2017, and relevant budget data are as follows. Actual $1,400,000 101,000 favorable Comparison with Bud Sales Variable cost of goods sold Variable selling and administrative expenses Controllable fixed cost of goods sold Controllable fixed selling and administrative expenses 55,000 unfavorable 25,000 unfavorable 676,000 124,000 170,000 79,000 On target On target Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount. Prepare a responsibility report for the Home Division. (List variable costs before fixed costs. Round ROI to 1 decimal place, e.g. 1.5.) OPTIMUS COMPANY Home Division For the Year Ended December 31, 2017 Difference Favorable Neither Favorable Actual nor Unfavorable ROI Compute the expected ROI in 2017 for the Home Division, assuming the following independent changes to actual data. (Round ROI to 1 decimal place, e.g. 1.5.) The expected ROI (1) vanable cost of goods sold is decreased by 7%. (2) Average operating assets are decreased by 10%. (3) Sales are increased by $200,000, and this increase is expected to increase contribution margin by $86,000.Explanation / Answer
Solution (a)
Optimus Company
Home Division
Responsibility Report
For the Year Ended December 31, 2017
Particulars
Budget ($)
Actual ($)
Differences
Favorable Unfavorable
Neither Favorable
Nor Unfavorable
Sales
1,299,000
1,400,000
$ 101,000
Favorable
Variable costs
Cost of goods sold
621,000
676,000
$ 55,000
Unfavorable
Selling and administrative expenses
99,000
124,000
$ 25,000
Unfavorable
Total
720,000
800,000
$ 80,000
UnFavorable
Contribution margin
579,000
6,00,000
$ 21,000
Favorable
Controllable fixed costs
Cost of goods sold
170,000
170,000
0
Selling and administrative costs
79,000
79,000
0
Total
249,000
249,000
0
Controllable margin
330,000
351,000
$ 21,000
Favorable
*Return on investment
16.5 %
17.6 %
1.1 %
Favorable
*Return on investment
Actual = Controllable margin / Average operating assets X 100
= $ 351,000 / $ 2,000,000 X 100 = 17.6 %
Budget = Controllable margin / Average operating assets X 100
= $ 330,000 / $ 2,000,000 X 100 = 16.5 %
Solution (c)
(1)Variable cost of goods sold is decreased by 7%
Particulars
Amount ($)
Controllable margin
351,000
Add: Decrease in Cost of goods sold ($ 676,000 X 7%)
47,320
New Controllable margin
398,320
Expected Return on investment ($398,320/ $ 2,000,000 X 100 )
19.9%
(2)Average operating assets are decreased by 10%
Particulars
Amount ($)
Average operating assets
2,000,000
Less: Decrease in average operating assets ($ 2,000,000 X 10%)
200,000
New Average operating assets
1,800,000
Controllable margin
351,000
Expected Return on investment ($ 351,000 / $ 1,800,000 X 100 )
19.5%
(3)Sales are increased by $ 200,000, and this increase is expected to increase contribution margin by $ 86,000.
Particulars
Amount ($)
Controllable margin
351,000
Add: Increase in contribution margin
86,000
New Controllable margin
437,000
Expected Return on investment ($ 437,000/ $ 2,000,000 X 100 )
21.9%
Particulars
Budget ($)
Actual ($)
Differences
Favorable Unfavorable
Neither Favorable
Nor Unfavorable
Sales
1,299,000
1,400,000
$ 101,000
Favorable
Variable costs
Cost of goods sold
621,000
676,000
$ 55,000
Unfavorable
Selling and administrative expenses
99,000
124,000
$ 25,000
Unfavorable
Total
720,000
800,000
$ 80,000
UnFavorable
Contribution margin
579,000
6,00,000
$ 21,000
Favorable
Controllable fixed costs
Cost of goods sold
170,000
170,000
0
Selling and administrative costs
79,000
79,000
0
Total
249,000
249,000
0
Controllable margin
330,000
351,000
$ 21,000
Favorable
*Return on investment
16.5 %
17.6 %
1.1 %
Favorable
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