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, 2020, and relevant budget data are as follows.

Prepare a responsibility report for an investment center, and compute ROI.
   Actual    Comparison with Budget
Sales    $1,400,000    $100,000 favorable
The variable cost of goods sold    665,000    45,000 unfavorable
Variable selling and administrative expenses    125,000    25,000 unfavorable
Controllable fixed cost of goods sold    170,000    On target
Controllable fixed selling and administrative expenses    80,000    On target

The average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.
Instructions

    a. Prepare a responsibility report (in thousands of dollars) for the Home Division.

    Controllable margin:
    Budget $330;
    Actual $360
    b. Evaluate the manager’s performance. Which items will likely be investigated by top management?
    c. Compute the expected ROI in 2020 for the Home Division, assuming the following independent changes to actual data.
        1. Variable cost of goods sold is decreased by 5%.
        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 $80,000

2.

The Sports Equipment Division of Harrington Company is operated as a profit center. Sales for the division were budgeted for 2020 at $900,000. The only variable costs budgeted for the division were the cost of goods sold ($440,000) and selling and administrative ($60,000). Fixed costs were budgeted at $100,000 for the cost of goods sold, $90,000 for selling and administrative, and $70,000 for noncontrollable fixed costs. Actual results for these items were:

Prepare a responsibility report for a profit center, and compute ROI.
Sales    $880,000
Cost of goods sold   
Variable    408,000
Fixed    105,000
Selling and administrative   
Variable    61,000
Fixed    66,000
Noncontrollable fixed    90,000
Instructions

    a. Prepare a responsibility report for the Sports Equipment Division for 2020.
    b. Assume the division is an investment center, and average operating assets were $1,000,000. The noncontrollable fixed costs are controllable at the investment center level. Compute ROI using the actual amounts.

Answer 1

Please give positive rating your feedback is valuable to me.

In case , any problem please leave a comment.