Dinkle Manufacturing Company manufactures a variety of tools and industrial equi

Question

Dinkle Manufacturing 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, 2010, and relevant budget data are as follows.
Actual Comparison
with Budget
Sales $1,510,000 $104,700 favorable
Variable cost of goods sold 710,000 61,600 unfavorable
Variable selling and administrative expenses 133,000 26,000 unfavorable
Controllable fixed cost of goods sold 175,900 On target
Controllable fixed selling and admin. expenses 90,100 On target


Average operating assets for the year for the Home Division were $2,502,900 which was also the budgeted amount.



Complete the responsibility report for the Home Division.


Compute the expected ROI in 2011 for the Home Division, assuming the following independent changes to actual data.
1. Variable cost of goods sold is decreased by 6%.
2. Average operating assets are decreased by 10%.
3. Sales are increased by $207,600, and this increase is expected to increase contribution margin by $91,400.

Explanation / Answer

Details Actual Comparison Budgeted Sales 1,510,000.00 104,700.00 1,405,300.00 Variable COGS 710,000.00 61,600.00 (648,400.00) Variable Selling and 133,000.00 26,000.00 (107,000.00) Administrative expenses Controllable Fixed Cost of Goods Sold 175,900.00 0.00 (175,900.00) Controllable Fixed Selling and Administrative Expenses 90,100.00 0.00 (90,100.00) Budgeted Net Income 383,900.00 1. Variable Cost of Goods Sold is increased by 6% Actual Comparison Budgeted Sales 1,510,000.00 104,700.00 1,405,300.00 Variable COGS 852,000.00 61,600.00 (790,400.00) Variable Selling and 133,000.00 26,000.00 (107,000.00) Administrative expenses Controllable Fixed Cost of Goods Sold 175,900.00 0.00 (175,900.00) Controllable Fixed Selling and Administrative Expenses 90,100.00 0.00 (90,100.00) Budgeted Net Income 241,900.00 Budgeted Operating Assets 2,502,900.00 Expected ROI(241,900 / 2502900) 0.10 2. Average Operating Assets are decreased by 10 % Actual Comparison Budgeted Sales 1,510,000.00 104,700.00 1,405,300.00 Variable COGS 710,000.00 61,600.00 (648,400.00) Variable Selling and 133,000.00 26,000.00 (107,000.00) Administrative expenses Controllable Fixed Cost of Goods Sold 175,900.00 0.00 (175,900.00) Controllable Fixed Selling and Administrative Expenses 90,100.00 0.00 (90,100.00) Budgeted Net Income 383,900.00 Budgeted Operating Assets(2502900 * 0.9 ) 2,252,610.00 Expected ROI 0.17 3 Sales are expected to increase by 207,600 Actual Comparison Budgeted Sales 1,717,600.00 104,700.00 1,612,900.00 Variable COGS 710,000.00 61,600.00 (648,400.00) Variable Selling and 133,000.00 26,000.00 (107,000.00) Administrative expenses Controllable Fixed Cost of Goods Sold 175,900.00 0.00 (175,900.00) Controllable Fixed Selling and Administrative Expenses 90,100.00 0.00 (90,100.00) Budgeted Net Income 591,500.00 Budgeted Operating Assets 2,502,900.00 Expected ROI 0.24

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