Problem - Optimus Company manufacturing a variety of tools and industries equipment. The company operates through three divisions. Each division is an investment centre. Operating data for the Home Division for the year ended December 31, 2017, and relevant budget data are as follows.
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Actual
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Comparison with Budget
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Sales
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$1,400,000
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$100,000 favorable
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Variable cost of goods sold
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675,000
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56,000 unfavorable
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Variable selling and administrative expenses
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126,000
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24,000 unfavorable
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Contribution fixed cost of goods sold
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171,000
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On target
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Contribution fixed selling and administrative expenses
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81,000
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On target
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Average operating assets for the year for the Home Davison were $2,001,000 which was also the budgeted amount.
Required -
1. Prepare a responsibility report for the Home Division.
2. Compute the expected ROI in 2017 for the Home Division, assuming the following independent changes to actual data.
(i) Variable cost of goods sold is decreased by 7%.
(ii) Average operating assets are decreased by 12%.
(iii) Sales are increased by $200,000 and this increase is expected to increase contribution margin by $84,000.