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Homework answers / question archive /  Company manufactures a variety of tools and industrial equipment

 Company manufactures a variety of tools and industrial equipment

Accounting

 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. Sales Variable cost of goods sold Variable selling and administrative expenses Controllable fixed cost of goods sold Controllable fixed selling and administrative expenses Actual $1,401.000 680.000 126,000 170,000 81.000 Comparison with Budget $100,000 favorable 55,000 unfavorable 24,000 unfavorable On target On target Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.
Compute the expected ROI in 2020 for the Home Division, assuming the following independent changes to actual data. (Round ROI to 2 decimal places, eg. 1.57%.) The expected ROI (1) Variable cost of goods sold is decreased by 7%. Average operating assets are decreased by 20.0%. % % (2) (3) Sales are increased by $201,000, and this increase is expected to increase contribution margin by $85,000. %

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Statement showing Net Income
Sales   1,401,000
Less: Variable cost    
Variable cost of goods sold 680,000  
Variable selling and administrative expense 126,000 (806,000)
Contribution Margin   595,000
Less: Fixed cost    
Fixed cost of goods sold 170,000  
Fixed selling and administrative expense 81,000 (251,000)
Net Income   344,000

1. Variable cost of goods sold is decreased by 7%:

Revised Variable cost of goods sold = 680,000 * (100 - 7)% = $632,400

Revised Net Income = Net income + Variable cost of goods sold - Revised cost of goods sold

= 344,000 + 680,000 - 632,400

= $391,600

Operating Assets = $2,000,000

ROI = Net income / Operating Assets

= 391,600 / 2,000,000

= 19.58%

2. Revised Operating Assets = 2,000,000 * (100-20)% = $1,600,000

ROI = Net income / Operating Assets

= 344,000 / 1,600,000

= 21.5%

3. Contribution margin increases by $85,000

Revised Net Income = Net Income + Increase in Contribution margin

= 344,000 + 85,000

= $429,000

ROI = Net income / Operating Assets

= 429,000 / 2,000,000

= 21.45%

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