Question

In: Accounting

Lombard, Inc. has two investment centers and has developed the following information: Department A Department B...

Lombard, Inc. has two investment centers and has developed the following information: Department A Department B Departmental controllable margin $120,000 ? Average operating assets ? $400,000 Sales 800,000 250,000 ROI 10% 12% Answer the following questions about Department A and Department B.

1. What was the amount of Department A's average operating assets? Average Operating Assets $ ?

2. What was the amount of Department B's controllable margin? Controllable Margin $ ?

3. If Department B is able to reduce its operating assets by $100,000, what would be Department B's new ROI ? New ROI %?

4. If Department A is able to increase its controllable margin by $60,000 as a result of reducing variable costs, what would be Department A's new ROI? New ROI %?

Expert Solution

Department A Department B

Controllable margin $120,000 ?

Average operating assets ? $400,000

Sales 800,000 250,000

ROI 10% 12%

1. Department A's average operating assets = Controllable margin / ROI

= $ 120,000 / 10% = $ 12,00,000

2. Department B's controllable margin = Average operating assets * ROI

= $ 4,00,000 * 12%

= $ 48,000

3. New net operating assets = $ 4,00,000 - $ 1,00,000 = $ 3,00,000

New ROI = Controllable margin / New net operating assets

= $ 48,000 / $ 3,00,000

= 16%

4. New controllable margin = $ 1,20,000 + $ 60,000 = $ 1,80,000

New ROI = New controllable margin / Average operating assets

= $ 1,80,000 / $ 12,00,000

= 15%

ekkarill92 answered 2 years ago

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