The Camping Division of Custer Company is operated as a profit center. Sales for the division were budgeted for 2020 at $700,000. The only variable costs budgeted for the division were cost of goods sold ($340,000) and selling and administrative ($46,000). Fixed costs were budgeted at $77,000 for cost of goods sold, $70,000 for selling and administrative, and $69,000 for noncontrollable fixed costs. Actual results for these items were:
Sales $678,000
Cost of goods sold
Variable 315,000
Fixed 81,000
Selling and administrative
Variable 47,000
Fixed 51,000
Noncontrollable fixed 69,000
Instructions
Prepare a responsibility report for the Camping 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.
Upon further analysis, Custer Company determined that if it committed to a 12 month advertising campaign costing $18,000, they could increase budgeted sales by 25%. Variable costs also will increase by 25%. Fixed cost of goods sold would remain at $77,000 and selling and administrative expenses increases by the $18,000 cost of this contract to a total of $88,000. Noncontrollable fixed costs would remain at $69,000.
This plan resulted in the following results:
Sales $873,000
Cost of goods sold
Variable 420,000
Fixed 81,000
Selling and administrative
Variable 56,000
Fixed 71,000
Noncontrollable fixed 69,000
Prepare a responsibility report for the Camping Division based on the new projections. Did the increase in advertising benefit the company?
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. Discuss the impact of the change on ROI.
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