Please do part C Problem 22-5A (Part Level Submission) Optimus Company manufactu
ID: 2531258 • 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 arn 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 Sales Variable cost of goods sold Variable selling and administrative expenses Controllable fixed cost of goods sold Controllable fixed selling and administrative expenses $100,000 favorable 674,000 125,000 170,000 79,000 56,000 unfavorable 25,000 unfavorable On target On target Average operating assets for the year for the Home Division were $2,001,000 which was also the budgeted amountExplanation / Answer
Answer:
C
Situation
Expected
ROI
Decrease in cost of goods sold by 5%
19.33%
Decrease in average assets by 10%
19.60%
increase average sales by $200,000 and as a result increase in contribution margin by $80,000
21.94%
Working notes for the above answer is as under
1
Decrease in cost of goods sold by 5%
Controllable margin
353000
Add decrease in cost of goods sold (674000*5%)
33700
New Controllable margin
386700
divide by; average operating assets
2,001,000
Expected ROI
19.33%
2
Decrease in average assets by 10%
Average Operating assets
2,001,000
Less reduction in average operating assets (2001000*10%)
200100
New average operating assets
1,800,900
Controllable margin
353000
Devided by New average operating assets
1,800,900
Return on Investment
19.60%
3
Controllable margin
353000
Add increase in contribution margi
86000
New Controllable margin
439000
divide by; average operating assets
2,001,000
Expected ROI
21.94%
Situation
Expected
ROI
Decrease in cost of goods sold by 5%
19.33%
Decrease in average assets by 10%
19.60%
increase average sales by $200,000 and as a result increase in contribution margin by $80,000
21.94%