Question

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, 2020, and relevant budget data are as follows.

Actual

Comparison with Budget

Sales$1,400,000$100,000 favorable

Variable cost of goods sold665,00045,000 unfavorable

Variable selling and administrative expenses125,00025,000 unfavorable

Controllable fixed cost of goods sold170,000On target

Controllable fixed selling and administrative expenses80,000On target

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

Prepare a responsibility report for the Home Division. (List variable costs before fixed costs. Round ROI to 2 decimal places, e.g. 1.57%.)

OPTIMUS COMPANY
Home Division
Responsibility Report
For the Year Ended December 31, 2020

Difference

Budget

Actual

Favorable
Unfavorable
Neither Favorable
nor Unfavorable

Gross ProfitControllable Direct Fixed CostsTotal Variable CostsVariable CostsContribution MarginControllable MarginTotal Controllable Direct Fixed CostsSalesCost of Goods SoldSelling and Administrative

$ $ $

FavorableUnfavorableNeither Favorable nor Unfavorable

SalesContribution MarginControllable Direct Fixed CostsSelling and AdministrativeControllable MarginCost of Goods SoldGross ProfitTotal Controllable Direct Fixed CostsTotal Variable CostsVariable Costs

    Variable Costs    Controllable Margin    Contribution Margin    Selling and Administrative    Controllable Direct Fixed Costs    Cost of Goods Sold    Gross Profit    Sales    Total Controllable Direct Fixed Costs    Total Variable Costs    

FavorableUnfavorableNeither Favorable nor Unfavorable

    Contribution Margin    Total Controllable Direct Fixed Costs    Controllable Direct Fixed Costs    Selling and Administrative    Total Variable Costs    Variable Costs    Controllable Margin    Cost of Goods Sold    Gross Profit    Sales    

   

FavorableUnfavorableNeither Favorable nor Unfavorable

    Variable Costs    Selling and Administrative    Cost of Goods Sold    Total Controllable Direct Fixed Costs    Controllable Direct Fixed Costs    Total Variable Costs    Sales    Contribution Margin    Gross Profit    Controllable Margin    

   

FavorableUnfavorableNeither Favorable nor Unfavorable

SalesSelling and AdministrativeContribution MarginGross ProfitTotal Controllable Direct Fixed CostsVariable CostsTotal Variable CostsControllable Direct Fixed CostsControllable MarginCost of Goods Sold

   

FavorableUnfavorableNeither Favorable nor Unfavorable

Total Variable CostsControllable MarginVariable CostsContribution MarginCost of Goods SoldGross ProfitControllable Direct Fixed CostsTotal Controllable Direct Fixed CostsSalesSelling and Administrative

    Contribution Margin    Sales    Selling and Administrative    Variable Costs    Cost of Goods Sold    Total Controllable Direct Fixed Costs    Controllable Direct Fixed Costs    Controllable Margin    Total Variable Costs    Gross Profit    

FavorableUnfavorableNeither Favorable nor Unfavorable

    Controllable Margin    Total Variable Costs    Sales    Total Controllable Direct Fixed Costs    Cost of Goods Sold    Variable Costs    Contribution Margin    Controllable Direct Fixed Costs    Selling and Administrative    Gross Profit    

FavorableUnfavorableNeither Favorable nor Unfavorable

    Total Controllable Direct Fixed Costs    Controllable Margin    Cost of Goods Sold    Variable Costs    Selling and Administrative    Gross Profit    Total Variable Costs    Contribution Margin    Controllable Direct Fixed Costs    Sales    

   

FavorableUnfavorableNeither Favorable nor Unfavorable

Controllable Direct Fixed CostsControllable MarginCost of Goods SoldGross ProfitSalesSelling and AdministrativeTotal Controllable Direct Fixed CostsTotal Variable CostsVariable CostsContribution Margin

$ $ $

FavorableUnfavorableNeither Favorable nor Unfavorable

ROI % % %

FavorableUnfavorableNeither Favorable nor Unfavorable

Compute the expected ROI in 2020 for the Home Division, assuming the following independent changes to actual data. (Round ROI to 2 decimal places, e.g. 1.57%.)

The expected ROI

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

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

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

Answer 1

Responsibility Report
	Budget	Actual		Favorable/ Unfavorable/ Neither Favorable Nor Unfavorable
Sales	1300000	1400000	100000	Favorable
Variable Cost
Cost of Goods Sold	620000	665000	45000	Unfavorable
Selling and Administrative Expenses	100000	125000	25000	Unfavorable
Total Variable Cost	720000	790000	70000	Unfavorable
Contribution Margin	580000	610000	30000	Unfavorable
Controllable Fixed Cost
Cost of Goods Sold	170000	170000	0	Neither Favorable Nor Unfavorable
Selling and Administrative Expenses	80000	80000	0	Neither Favorable Nor Unfavorable
Total Fixed Cost	250000	250000	0	Neither Favorable Nor Unfavorable
Controllable Margin	330000	360000	30000	Favorable
Average Operating assets	2000000	2000000	2000000
ROI	16.50%	18.00%	1.50%	Favorable

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

Expected ROI = 19.66%

Responsibility Report
	Budget	Actual		Favorable/ Unfavorable/ Neither Favorable Nor Unfavorable
Sales	1300000	1400000	100000	Favorable
Variable Cost
Cost of Goods Sold	620000	631750	11750	Unfavorable
Selling and Administrative Expenses	100000	125000	25000	Unfavorable
Total Variable Cost	720000	756750	36750	Unfavorable
Contribution Margin	580000	643250	63250	Unfavorable
Controllable Fixed Cost
Cost of Goods Sold	170000	170000	0	Neither Favorable Nor Unfavorable
Selling and Administrative Expenses	80000	80000	0	Neither Favorable Nor Unfavorable
Total Fixed Cost	250000	250000	0	Neither Favorable Nor Unfavorable
Controllable Margin	330000	393250	63250	Favorable
Average Operating assets	2000000	2000000	2000000
ROI	16.50%	19.66%	3.16%	Favorable

2. If Average operating assets are decreased by 10%

Expected ROI = 20.00%

Responsibility Report
	Budget	Actual		Favorable/ Unfavorable/ Neither Favorable Nor Unfavorable
Sales	1300000	1400000	100000	Favorable
Variable Cost
Cost of Goods Sold	620000	665000	45000	Unfavorable
Selling and Administrative Expenses	100000	125000	25000	Unfavorable
Total Variable Cost	720000	790000	70000	Unfavorable
Contribution Margin	580000	610000	30000	Unfavorable
Controllable Fixed Cost
Cost of Goods Sold	170000	170000	0	Neither Favorable Nor Unfavorable
Selling and Administrative Expenses	80000	80000	0	Neither Favorable Nor Unfavorable
Total Fixed Cost	250000	250000	0	Neither Favorable Nor Unfavorable
Controllable Margin	330000	360000	30000	Favorable
Average Operating assets	1800000	1800000	1800000
ROI	18.33%	20.00%	1.67%	Favorable

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

Expected ROI = 22.00%

	Actual
Sales	1600000 (1400000+200000)
Contribution Margin	690000 (610000+80000)
Controllable Fixed Cost
Cost of Goods Sold	170000
Selling and Administrative Expenses	80000
Total Fixed Cost	250000
Controllable Margin	440000
Average Operating assets	2000000
ROI	22.00%