Suppan Company manufactures a variety of tools and industrial equipment. The com

Question

Suppan 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, 2014, and relevant budget data are as follows.

Actual Comparison with budget

Sales $1,400,000 $100,000 favorable

Variable cost of goods sold 675,000 55,000 unfavorable

Variable selling and administrative expenses 125,000 25,000 unfavorable

Controllable fixed cost of goods sold 170,000 on target

Controllable fixed selling and administrative expense 80,000 on target

Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.

Prepare a responsibility report for the Home Division.

Compute the expected ROI in 2014 for the Home Division, assuming the following independent changes to actual data. (Round ROI to 1 decimal place, e.g. 1.5.)

The expected ROI

(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 $85,000.

Explanation / Answer

ROI = PROFIT / ASSET *100

350000 / 2000000 *100 = 17.5 %

the expected ROI in 2014 for the Home Division, assuming the following independent changes to actual data.

The expected ROI

(1) Variable cost of goods sold is decreased by 5%

ROI = 383750 / 2000000 *100 = 19.2 %

(2) Average operating assets are decreased by 10%.

   ROI = 350000 / 1800000 *100 = 19.4 %

(3) Sales are increased by $200,000, and this increase is expected to increase contribution margin by $85,000.

PROFIT = 635000

ROI = 635000 / 2000000 *100 = 31.7%

SALES 1400000 VARIABLE COST 675000 VAR. SELLING & ADM 125000 FIXED CGS 170000 FIXED SELLING & ADM 80000 PROFIT 350000

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