Strauss Company manufactures a variety of garden and lawn equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Lawnmower Division for the year ended December 31, 2014, and relevant budget data are as follows.

Average operating assets for the year for the Lawnmower Division were $5,000,000, which was also the budgeted amount.

Instructions

(a) Prepare a responsibility report (in thousands of dollars) for the Lawnmower Division.

(b) Evaluate the manager’s performance. Which items will likely be investigated by top management?

(c) Compute the expected ROI in 2014 for the Lawnmower Division, assuming the following independent changes.

(1) Variable cost of goods sold is decreased by 20%.

(2) Average operating assets are decreased by 24%.

(3) Sales are increased by $700,000, and this increase is expected to increase contribution margin by $260,000.

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Comparison with Budget $150,000 unfavorable 100,000 unfavorable Actual Sales $2,900,000 1,400,000 cost of goods sold Variable selling and administrative 40,000 favorable On target 300,000 expenses Controllable fixed cost of goods sold Controllable fixed selling and administrative 270,000 On target 140,000 expenses