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Sales
$3,000,000
Variable costs
1,950,000
Controllable fixed costs
600,000
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.
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