Question

The service division of Raney Industries reported the following results for 2017.

Sales $567,200
Variable costs 340,320
Controllable fixed costs 95,700
Average operating assets 609,100

Management is considering the following independent courses of action in 2018 in order to maximize the return on investment for this division.
(1) Reduce average operating assets by $127,100, with no change in controllable margin.
(2) Increase sales $102,300, with no change in the contribution margin percentage.

Compute the controllable margin and the return on investment for 2017.

Answer 1

Answer:

$131,180; 21.53%

Explanation:

The controllable margin and the return on investment for 2017 are as follows:

Controllable Margin = Sales - Variable cost - Controllable fixed cost

                                 = $567,200 - $340,320 - $95,700

                                  = $131,180

Return on investment = Controllable Margin ÷ Average operating assets

                                     = $131,180 ÷ $609,100

                                     = 0.2153

                                     = 21.53%