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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.
1. Increase sales by $300,000 with no change in the contribution
margin percentage.
2. Reduce variable costs by $150,000.
3. Reduce average operating assets by 4%.
Instructions
1.
Compute the return on investment (ROI) for the
current year.
2.
Using the ROI formula, compute the ROI under each
of the proposed courses of action. (Round to one decimal.)
Prepare a responsibility report for an investment center.
P10-5A
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, 2017, and relevant budget data are as follows.
Actual
Sales
Comparison with
Budget
$1,400,0$100,000 favorable