Question

Actual Comparison with Budget

Sales $1,500,000 $100,000

favorable Variable cost of goods sold 700,000 60,000 unfavorable

Variable selling and administrative expenses 125,000 25,000 unfavorable

Controllable fixed cost of goods sold 170,000 On target

Controllable fixed selling and administrative expenses 80,000 On target

Average operating assets for the year for the Home Division were $2,500,000 which was also the budgeted amount.

Compute the expected ROI in 2013 with the following independent changes to actual data.

Variable cost of goods sold is decreased by 6%.

Average operating assets are decreased by 10%.

Sales are increased by $200,000, and this increase is expected to increase contribution margin by $90,000.

Answer 1

ROI			in rounded to one decimal
Net operating income/Operating assets *100
467000/2500000*100	18.68	%	18.7	%
		COGS decreased by 6%
Sales	$1,500,000	$1,500,000
Variable COGS	700000	658000	(700000*94%)
Variable S & A expenses	125000	125000
Contribution margin	$675,000	$717,000
Controllable fixed cost of good sold	170000	170000
Controllable fixed S & A expenses	80000	80000
Net Operating profit	$425,000	$467,000
When avg operating assets decresaed by 10%
ROI=425000/(2500000*90%)*100	18.89	%	18.9	%
3)
ROI
(425000+90000)/2500000*100	20.6	%
If any doubt please comment