Need help with question \"C\" below: Suppan Company manufactures a variety of to
ID: 2720056 • Letter: N
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Need help with question "C" below:
Suppan Company manufactures a variety of tools and industrial equipment.
Problem 22-5A (part level submission) 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. Actua Comparison with Budget Sales Variable cost of goods sold Variable selling and administrative expenses Controllable fixed cost of goods sold Controllable fixed selling and administrative expenses $1,399 $1,3 99,020 $100,200 favorable 675,860 124,710 170,500 54,090 unfavorable 25,420 unfavorable On target 80,150 On target Average operating assets for the year for the Home Division were $1,999,880 which was also the budgeted amountExplanation / Answer
ROI = NET INCOME / TOTAL ASSETS *100
TOTAL INVESTMENT = $1998880
(C) VARIABLE COST OF GOODS SOLD DECREASES BY 5%
NET INCOME = 1399020 - (675860 - 5%) - (124710 -5%) - 170500 - 80150
= 1399020 - 642067 - 118475 - 170500 - 80150
= $387828
ROI = 387828/1998880 * 100
= 19.4%
AVERAGE OPERATING ASSETS DECREASES BY 11%
TOTAL INVESTMENT = 1998880 - 11%
= $1779003
ACTUAL NET INCOME = SALES - VARIABLE COST OF GOODS SOLD - VARIABLE SELLING AND ADMINISTRATIVE COSTS - CONTROLLABLE FIXED COST OF GOODS SOLD - CONTROLLABLE VARIABLE SELLING AND ADMINISTRATIVE COSTS
= 1399020 - 675860 - 124710 - 170500 - 80150
= $347800
ROI = 347800 / 1779003 * 100
= 19.55%
IF SALES INCRESES BY $200860 AND THIS INCREASE IS EXPECTED TO INCREASE CONTRIBUTION MARGIN BY $84910
NET INCOME = (1399020 + 200860)-675860-124710-170500-80150
= 1599880-675860-124710-170500-80150
= $548660
ROI = 548660/1998880 * 100
= 27.45%
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