CE 23-2
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.
