Question

Problem 10-5A a, c (Video) 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, 2020, and relevant budgget data are as follows. Actual Comparison with Budget $101,000 favorable Sales $1,400,000 Variable cost of goods sold 670,000 54,000 unfavorable Variable selling and administrative expenses 25,000 unfavora ble 124,000 Controllable fixed cost of goods sold On target 169,000 Controllable fixed selling and administrative expenses 80,000 On target Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount

Answer 1

	Budget	Actual	Variance
Sales	$ 1,299,000	$ 1,400,000	$      101,000	Favorable
Variable Costs
Cost of Goods Sold	$     616,000	$     670,000	$         54,000	Unfavorable
Selling and Administrative expenses	$        99,000	$     124,000	$         25,000	Unfavorable
Total Variable expenses	$     715,000	$     794,000	$         79,000	Unfavorable
Contribution Margin	$     584,000	$     606,000	$         22,000	Favorable
Fixed Expenses
Cost of Goods Sold	$     169,000	$     169,000	$                  -	Neither Favorable nor unfavorable
Selling and Administrative expenses	$        80,000	$        80,000	$                  -	Neither Favorable nor unfavorable
Total Fixed Expenses	$     249,000	$     249,000	$                  -	Neither Favorable nor unfavorable
Operating Income	$     335,000	$     357,000	$         22,000	Favorable
ROI	16.75%	17.85%	1.10%

ROI = Operating Income / Average Operating Assets x 100

b.
(1)

	Actual
Sales	$ 1,400,000
Variable Costs
Cost of Goods Sold	$     629,800	=670000*0.94
Selling and Administrative expenses	$     124,000
Total Variable expenses	$     753,800
Contribution Margin	$     646,200
Fixed Expenses
Cost of Goods Sold	$     169,000
Selling and Administrative expenses	$        80,000
Total Fixed Expenses	$     249,000
Operating Income	$     397,200
ROI	19.86%

(2) Average Operating Assets = $2000000 x 87.5% = $1750000
ROI = Operating Income / Average Assets x 100
= $357000 / $1750000 x 100 = 20.40%

(3)

	Actual
Contribution Margin	$     731,200	=646200+85000
Fixed Expenses
Cost of Goods Sold	$     169,000
Selling and Administrative expenses	$        80,000
Total Fixed Expenses	$     249,000
Operating Income	$     482,200
ROI	24.11%