Question

Diving Unlimited manufactures and sells diving boards and other pool accessories. Last month, Diving Unlimited had a controllable margin of $580,000, which was higher than the budgeted $550,000. If average operating assets were valued at $3 million, what was the change in ROI?

A. 1% favorable
B. 2% unfavorable
C. 0.5% unfavorable
D. 2.5% favorable

Answer 1

The change in ROI is a 1% increase from the budgeted ROI because the actual controllable margin exceeded the budgeted amount.

Step-by-step explanation:

To calculate the change in Return on Investment (ROI), we use the ROI formula, which is the Controllable Margin divided by the Average Operating Assets. To find the initial ROI, we would divide the budgeted Controllable Margin of $550,000 by the Average Operating Assets of $3 million. This gives us an ROI of approximately 18.33%. For the actual ROI, we divide the actual Controllable Margin of $580,000 by the same Average Operating Assets of $3 million to get an ROI of about 19.33%.

The change in ROI is the actual ROI minus the initial ROI, which is 19.33% - 18.33% = 1%. The change is a 1% increase. Since the question asks for the change and the final condition is better than the initial (actual ROI is higher than the budgeted ROI), our final answer will be positive.