Question

The Ferrell Transportation Company uses a responsibility reporting system to measure the performance of its three investment centers: Planes, Taxis, and Limos. Segment performance is measured using a system of responsibility reports and return on investment calculations. The allocation of resources within the company and the segment managers' bonuses are based in part on the results shown in these reports. Recently, the company was the victim of a computer virus that deleted portions of the company's accounting records. This was discovered when the current period's responsibility reports were being prepared. The printout of the actual operating results appeared as follows: REQUIRED: Solve for the missing amounts (a) - (i).

Answer 1

The missing amounts for Planes:

Return on Investments = Controllable Margin / Average Operating assets.

Using the data provided, Controllable Margin i.e, C is 25,000,000 * 12% = 3,000,000. ( answer)

Contribution Margin = Controllable margin + controllable Fixed Cost

So, B is 3,000,000 + 1,500,000 = 4,500,000 ( answer)

Sales Revenue = Variable Costs + Controbution Margin

So, A is 5,500,000 + 4,500,000 = 10,000,000 ( answer)

-----------------------------------------

Solution for Taxis

(f) Average Operating assets = Conrollable Margin/ return on Investments = 80,000/10% = 800,000. ( answer)

(e) Controllable Fixed Cost = Contribution Margin - Controllable margin = 250,000- 80,000 = 170,000 ( answer)

(d) Variable Cost= Sales - Contribution Margin = 500,000 - 250,000 = 250,000.

_______________________________________

Solution for Limos

(i) Return on invest ments= Controllable Margin / Average operating assets = 210,000/1,500,000 = 14% ( answer)

(h) Controllable Fixed Cost = Contribution Margin- Controllable Margin = 480,000-210,000= 270,000 ( answer)

(g) Sales revenue = Variable cost + contribution margin = 300,000 + 480,000 = 780,000. (answer)