Please do part C Problem 22-5A (Part Level Submission) Optimus Company manufactu
ID: 2518015 • Letter: P
Question
Please do part C
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 $1,401,000 Comparison with Budget $100,000 favorable Sales Variable cost of goods sold Variable seng and administrative expenses Controllable fixed cost of goods sold Controllable fixed selling and administrative expenses 674,000 125,000 170,000 56,000 unfavorable 25,000 unfavorable On target 9,000 On target Average operating assets for the year for the Home Division were $2,001,000 which was also the budgeted amount.Explanation / Answer
Ans.1 Variable cost of goods sold is decreased by 5%: ROI = Controllable margin / Average operating assets * 100 386700 / 2001000 * 100 19.3% *In the case of decrease in variable cost the controllable margin will also increase by the same amount. Decrease in variable cost of goods sold = 674000 * 5% 33700 This amount will be added to Controllable margin Total controllable margin = 353000 + 33700 386700 Ans.2 Average operating assets are decreased by 10%: ROI = Controllable margin / Average operating assets * 100 353000 / 1900950 * 100 18.6% *Average operating assets = 2001000 - 5% 1900950 Ans.3 Sales are increased by 200000, and this increase is expected to increase contribution margin by 86000. ROI = Controllable margin / Average operating assets * 100 439000 / 2001000 * 100 21.9% *Controllable margin = 353000 + 86000 439000 *The effect of increase in sales on contribution margin is already given, so we have to use only the amount of increase in contribution margin to calculate new controllable margin. *In the case of increase in Contribution margin the controllable margin will also increase by the same amount.