Final answer:
To prepare a responsibility report for the Plastics Division, the student must calculate the actual contribution margin and the controllable margin, and then determine the Return on Investment (ROI) by comparing these with the average operating assets.
Step-by-step explanation:
The student is working on a responsibility report for Bonita Company's Plastics Division for the year ending December 31, 2022. To complete this report, we need to calculate the contribution margin, which is the difference between the sales revenues and variable costs, and the controllable margin, which is the contribution margin minus the controllable fixed costs. The student has provided budgets and actuals for both contribution margin and controllable fixed costs and also the average operating assets for the division.
The contribution margin is the actual sales revenue minus actual variable costs. The Plastics Division's budgeted contribution margin was $759,500 and the actual was $768,900. For controllable fixed costs, the division had a budget of $297,500 and actual costs were $304,800.
To calculate the Return on Investment (ROI), we use the formula: (Controllable Margin / Average Operating Assets) x 100. The Controllable Margin is obtained by subtracting the actual controllable fixed costs from the actual contribution margin. Then we divide this result by the average operating assets and multiply by 100 to get the ROI percentage.
Based on the example scenarios, we can infer that if a center's variable costs exceed its revenues, it is generally advisable for it to shut down, indicating the importance of calculating contribution margin and other financial metrics accurately for decision making.