Question

The Sports Equipment Division of Johnson Company is operated as a profit center. Sales for the division were budgeted for 2020 at $899,000. The only variable costs budgeted for the division were cost of goods sold ($439,000) and selling and administrative ($62,000). Fixed costs were budgeted at $104,000 for cost of goods sold, $92,000 for selling and administrative, and $70,000 for noncontrollable fixed costs. Actual results for these items were:

Sales $889,000

Cost of goods sold:

Variable $414,000

Fixed $106,000

Selling and administrative:

Variable $63,000

Fixed $69,000

Noncontrollable fixed $90,000

-Prepare a responsibility report for the Sports Equipment Division for 2020

-Assume the division is an investment center, and average operating assets were $1,000,000. The noncontrollable fixed costs are controllable at the investment center level. Compute ROI using the actual amounts (round ROI to 1 decimal place, e.g. 1.5).

Return on investment: _________%

Answer 1

Answer:

i) Preparation of a responsibility report for the Sports Equipment Division for 2020 in the following way:

JOHNSON COMANY
Sports equipment division
Responsibility Report
2020
Particulars	Amount	Amount	Working	Favorable/unfavorable
	Budget	Actual	Differences
Sales	$8,99,000	$8,89,000	$10,000	unfavorable
variable costs
cost of goods sold	$4,39,000	$4,14,000	$25,000	Favorable
Selling and administrative	$62,000	$63,000	$1,000	unfavorable
Total variable costs	$5,01,000	$4,77,000	$24,000	Favorable
Contribution margin(sales-variable costs)	$3,98,000	$4,12,000	$14,000	Favorable
Controllable Fixed costs
Cost of goods sold	$1,04,000	$1,06,000	$2,000	unfavorable
Selling and administrative	$92,000	$69,000	$23,000	Favorable
Total fixed costs	$1,96,000	$1,75,000	$21,000	Favorable
Controllable margin(contribution margin- total fixed costs)	$2,02,000	$2,37,000	$35,000	Favorable

ii) Given :

non controllable fixed cost = $90,000

Actual contribution margin = $2,37,000(from above table)

Average operating assets = $10,00,000

Therefore

Return on investment

= (Actual contribution margin - non controllable fixed cost)/Average operating assets

=($2,37,000-$90,000)/$10,00,000

=($ 1,47,000)/$10,00,000

=0.147*100(convert into %)

=14.7%