Homework Answers
| ANSWER: | |
| Step-1 | Formulae: |
| Controllable margin = contribution margin - controllable fixed assets | |
| Contribution margin = sales - variable cost | |
| Contribution margin percentage = contribution margin/sales | |
| Return on investment = controllable margin/average operating assets | |
| Step-2 | Therefore, |
| (A) | |
| For 2020: | |
| Contribution margin = $477000 - $286200 = $190800 | |
| Controllable margin = $190800 - $65400 = $125400 | |
| Return on investment = $125400/$627000 | |
| 20% | |
| (B) | |
| For 2021: ALTERNATIVE 1: | |
| Average operating assets = $627000 - $104500 = $522500 | |
| Controllable margin (same as before) = $125400 | |
| Therefore, | |
| Return on investment = $125400/$522500 | |
| 24% | |
| Step-3 | (C) |
| For 2021: ALTERNATIVE 2: | |
| Sales = $477000 + $97185 = $574185 | |
| Contribution margin percentage (based on year 2020 data) = $190800/$477000 | |
| 40% | |
| Therefore, | |
| Contribution margin for 2021 = sales x contribution margin percentage | |
| $474185 x 40% | |
| 189674 | |
| Therefore, | |
| Controllable margin = $189674 - $65400= $124274 | |
| Expected return on investment = $124274/477000 | |
| 26% | |
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The South Division of Wiig Company reported the following data for the current year. Sales $2,950,000 Variable costs 1,976,500 Controllable fixed costs 605,000 Average operating assets 5,000,000 Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. Increase sales by $300,000 with no change in the...
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