Problem:
1. The service division of Metro Industries reported the following results for 2010.
|
Sales
|
$400,000
|
|
Variable costs
|
320,000
|
|
Controllable fixed costs
|
40,800
|
|
Average operating assets
|
280,000
|
Management is considering the following independent courses of action in 2011 in
order to maximize the return on investment for this division.
1. Reduce average operating assets by $80,000, with no change in controllable margin.
2. Increase sales $80,000, with no change in the contribution margin percentage.
(a) Compute the controllable margin and the return on investment for 2010.
(b) Compute the controllable margin and the expected return on investment for each proposed alternative.