The service division of Penrith Industries reported the following results for 2020. Sales.............................................500,000 Variable costs...............................300,000 Controllable fixed

Question:

The service division of Penrith Industries reported the following results for 2020.

Sales.............................................€500,000

Variable costs...............................300,000

Controllable fixed costs................75,000

Average operating assets..............625,000

Management is considering the following independent courses of action in 2021 in order to maximize the return on investment for this division.

1. Reduce average operating assets by €125,000, with no change in controllable margin.

2. Increase sales €100,000, with no change in the contribution margin percentage.

(a) Compute the controllable margin and the return on investment for 2020.

(b) Compute the controllable margin and the expected return on investment for each proposed alternative.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...

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