Question

               

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.

(a)

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

Budget           Actual          FavorableUnfavorableNeither Favorablenor Unfavorable

                $                                   $

                               

               

                               

                               

               

                               

                               

               

                               

                               

               

                               

                               

                               

               

$

                                $

                                $

               

ROI                        

%                          

%                          

%          

Answer 1

	Budget	Actual	Difference
Sales (a)	12,99,000	14,00,000	1,01,000	Favorable
Variable Costs
Cost of Goods Sold (b)	6,20,000	6,75,000	55,000	Unfavorable
Selling and Administrative (c )	1,01,000	1,26,000	25,000	Unfavorable
Total Variable Cost (d=b+c)	7,21,000	8,01,000	80,000	Unfavorable
Contribution Margin (e = a-d)	5,78,000	5,99,000	21,000	Favorable
Fixed Costs
Controllable fixed cost of goods sold (f)	1,70,000	1,70,000	-	Neither Favorable
				nor Unfavorable
Controllable fixed selling and administrative expenses (g)	81,000	81,000	-	Neither Favorable
				nor Unfavorable
Total Fixed Costs (h = f+g)	2,51,000	2,51,000	-	Neither Favorable
				nor Unfavorable
Controllable Margin (i = e - h)	3,27,000	3,48,000	21,000	Favorable
ROI (Controllable Margin / Avg Assets)	16.36%	17.41%	1.05%	Favorable