The Patio Furniture Division of Clarke Company operates as a profit center. Data
ID: 2570511 • Letter: T
Question
The Patio Furniture Division of Clarke Company operates as a profit center. Data for the year 2017 is as follows:
Actual/ Budget
Sales: Actual: $2,550,000 Budget:$2,500,000
Cost of good sold:
Variable (actual ) 1,259,000 (budget) 1,300,000
Fixed ( actual ) 239,000( budget ) 235,000
Selling and administrative:
Variable ( actual) 226,000 ( budget ) 220,000
Fixed (actual) 126,000 (budget )120,000
The budget for fixed cost of goods sold includes $35,000 of indirect fixed costs; the actual for fixed cost of goods sold includes $36,000 of indirect fixed costs. The budget for fixed selling and administrative costs includes $70,000 of indirect fixed costs; the actual for selling and administrative costs includes $74,000 of indirect fixed costs.
A. Prepare a responsibility report for the Patio Furniture Division for 2017.
B. If the Patio Furniture Division was operated as an investment center and the budgeted operating assets were $4,000,000 and the actual operating assets $4,050,000, compute the budgeted and actual return on investment.
Actual/ Sales/ Difference ( favoriable " F " unfavorable " U " )
Sales:
variable costs:
cost of good sold
selling and admin
total variable costs
contribution margin
controllable fixed costs
cost of goods sold
selling and admin
total fixed costs
controllable margin
Please do not leave anything out. Thank you
Explanation / Answer
CLARKE COMPANY PATIO FURNITURE DIVISION Responsibility Report For the year ended 2017 Budgeted Actual Difference F/U Sales 2500000 2550000 50000 F Less: Variablecost Cost of goods sold 1300000 1259000 41000 F Selling and administrative 220000 226000 6000 U Total Variable Cost 1520000 1485000 35000 F Contribution (sales - total variable cost) 980000 1065000 85000 F Contollable fixed costs: Cost of goods sold 200000 203000 3000 U Selling and administrative 50000 52000 2000 U Total Fixed Costs 250000 255000 5000 U Controllable Margin (Contribution - Fixed costs) 730000 810000 80000 F ROI 18.25% 20% 1.75% F *Return on investment (ROI) = Controllable Margin / Operating assets * 100 Budgeted 730000 / 4000000 * 100 18.25% Actual 810000 /4050000 * 100 20% *Indirect Fixed Costs are not included in responsibility report because that are not controllable. *Calculation of controllable fixed costs: Budget Actual Controllable cost of goods sold (235000 - 35000) = 200000 (239000-36000) = 203000 Controllable Selling and administrative (120000 - 70000) = 50000 (126000 - 74000) = 52000
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