Namath Manufacturing Company manufactures a variety of tools and industrial equi

Question

Namath 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, 2012, and relevant budget data are as follows.

Actual

Comparison
with Budget

Average operating assets for the year for the Home Division were $2,499,940 which was also the budgeted amount.

Complete the responsibility report for the Home Division.

For the Year Ended December 31, 2012

Compute the expected ROI in 2013 for the Home Division, assuming the following independent changes to actual data.

Variable cost of goods sold is decreased by 7%.

Average operating assets are decreased by 12%.

Sales are increased by $200,390, and this increase is expected to increase contribution margin by $89,970.

Actual

Comparison
with Budget

Sales $1,500,700 $100,590 favorable Variable cost of goods sold 696,840 60,300 unfavorable Variable selling and administrative expenses 124,080 25,890 unfavorable Controllable fixed cost of goods sold 169,620 On target Controllable fixed selling and administrative expenses 80,240 On target

Explanation / Answer

Total Expenses       $1070780

Net Operating Expenses $429,920

Return on Investment = Net Operating Expenses $429,920 / Average operating assets $2,499,940 = 17.20%

1.Variable cost of goods sold is decreased by 7%:

Net Operating Expenses = $429,920 + (696,840 * 7%) = $478699

Return on Investment = $478699 / $2,499,940 = 19.15%

2.Average operating assets are decreased by 12%

Average operating assets = $2,499,940 * (1 - 0.12) = $2,199,948

Return on Investment = $429,920 / $2,199,948 = 19.54%

3. Sales are increased by $200,390, and this increase is expected to increase contribution margin by $89,970.

Net Operating Expenses = $429,920 + $89,970 = $519890

Return on Investment = $519890 / $2,499,940 = 20.80%

the expected ROI in 2013 for the Home Division, assuming the following independent changes to actual data:

Sales $1,500,700 Variable cost of goods sold 696,840 Variable selling and administrative expenses 124,080 Controllable fixed cost of goods sold 169,620 Controllable fixed selling and administrative expenses 80,240

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