A 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.
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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
|
|
Variable cost of goods sold
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665,000
|
45,000 unfavorable
|
|
Variable selling and administrative expenses
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125,000
|
25,000 unfavorable
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Controllable fixed cost of goods sold
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170,000
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On target
|
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Controllable fixed selling and administrative expenses
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80,000
|
On target
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Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.
Instructions
1. Prepare a responsibility report (in thousands of dollars) for the Home Division.
(a) Controllable margin: Budget $330; Actual $360
2. Evaluate the manager's performance. Which items will likely be investigated by top management?
3. Compute the expected ROI in 2017 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.