Chapter 10, Problem 10.5AP

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 fol lows.

	Actual	Comparison with Budget
Sales	$1,400,000	$100,000 favorable
Variable cost of goods sold	665,000	45,000 unfavorable
Variable selling and administrative expenses	125,000	25,000 unfavorable
Controllable fixed cost of goods sold	170,000	On target
Controllable fixed selling and administrative expenses	80,000	On target

Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.

Instructions

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

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

(c) Compute the expected ROI in 2017 for the Home Division, assuming the following independent changes to actual data.

(1) Variable cost of goods sold is decreased by 5%.

(2) Average operating assets arc decreased by 10%.

(3) Sales are increased by $200,000. and this increase is expected to increase contri­bution margin by $80,000.