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

$1,399,000 $100,000 favorable

Variable cost of goods sold 675,000 54,000 unfavorable

Variable selling and administrative expenses 124,000 24,000 unfavorable

Controllable fixed cost of goods sold 170,000 On target

Controllable fixed selling and administrative expenses 79,000 On target

Average operating assets for the year for the Home Division were $2,001,000 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.)

Answer 1

	Budget	Actual	Difference
Sales (a)	$1,299,000	$1,399,000	$100,000	Favorable
Variable Costs
Cost of Goods Sold (b)	$621,000	$675,000	$54,000	Unfavorable
Selling and Administrative (c )	$100,000	$124,000	$24,000	Unfavorable
Total Variable Cost (d=b+c)	$721,000	$799,000	$78,,000	Unfavorable
Contribution Margin (e = a-d)	$578,000	$600,000	$22,000	Favorable
Fixed Costs
Controllable fixed cost of goods sold (f)	$170,000	$170,000	$0	Neither Favorable nor Unfavorable
Controllable fixed selling and administrative expenses (g)	$79,000	$79,000	$0	Neither Favorable nor Unfavorable
Total Fixed Costs (h = f+g)	$249,000	$249,000	$0	Neither Favorable nor Unfavorable
Controllable Margin (i = e - h)	$329,000	$351,000	$22,000	Favorable
ROI (Controllable Margin / Avg Assets)	16.44%	17.54%	1.10%	Favorable