Problem 22-5A (Part Level Submission)

Optimus 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, 2017, and relevant budget data are as follows.

Actual

Comparison with Budget

Sales $1,400,000 $101,000 favorable

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

Variable selling and administrative expenses 126,000 25,000 unfavorable

Controllable fixed cost of goods sold 170,000 On target

Controllable fixed selling and administrative expenses 81,000 On target

Average operating assets for the year for the Home Division were $1,999,000 which was also the budgeted amount.

Prepare a responsibility report for the Home Division. (List variable costs before fixed costs. Round ROI to 1 decimal place, e.g. 1.5.)

OPTIMUS COMPANY

Home Division

Responsibility Report

For the Year Ended December 31, 2017

Difference

Budget Actual

Sales 1299000 1400000 101000

VARIABLE COSTS

COGS 620000 675000 55000

Selling admin cost 101000 126000 25000

Total variable 721000 801000 80000

Contribution margin 578000 599000 21000

Controllable direct fix 170000 170000

COGS 251000 251000

Selling admin cost 81000 81000

Control Margin 327000 348000 21000

ROI 16.36% 17.41 % 1.05%

(c)

Compute the expected ROI in 2017 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 7%.

%

(2) Average operating assets are decreased by 12%.

%

(3) Sales are increased by $201,000, and this increase is expected to increase contribution margin by $86,000.

%