Question

Marx 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

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) Variable cost of goods sold is decreased by 15%.

(2) 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

(a)

(b)

Evaluation of manager's performance -

Only the sales and variable costs of goods sold are unfavourable.

Items likely to be investigated by top management - Sales and Variable cost of goods sold.

(c)

(I) Computing the expected ROI in 2017 for the Weedeater Division, assuming variable cost of goods sold is decreased by 15% -

(II) Computing the expected ROI in 2017 for the Weedeater Division, assuming average operating assets are decreased by 20% -

(III) Computing the expected ROI in 2017 for the Weedeater Division, assuming sales are increased by $500,000 and this increase is expected to increase contribution margin by $210,000 -

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Thanks!