Question

Mac Manufacturing 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 Weedeater Division for the year ended December 31, 2016, and relevant budget data are as follows.

Actual Comparison with Budget

Sales $2,900,000 $120,000 unfavorable

Variable cost of goods sold 1,400,000 90,000 unfavorable

Variable selling and administrative expenses 290,000 60,000 favorable

Controllable fixed cost of goods sold 270,000 On target

Controllable fixed selling and administrative 140,000 On target

The average operating assets for the year for the Weedeater Division were $5,000,000 which was also the budgeted amount.

Instructions

(a) Prepare a responsibility report (in thousands of dollars) for the Weedeater 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 Weedeater Division, assuming the following independent changes.

(1) The variable cost of goods sold has decreased by 15%.

(2) The average operating assets are decreased by 20%.

(3) Sales are increased by $500,000 and this increase is expected to increase contribution margin by $210,000.

Answer 1

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