I need help with the following problem:
The contribution format income statement for Huerra Company for last year is given below:
Total Unit
Sales $1,006,000 $50.30
Variable expenses
603,600
30.18
Contribution margin 402,400 20.12
Fixed expenses
318,400
15.92
Net operating income 84,000 4.20
Income taxes @ 40 %
33,600
1.68
Net operating income
$50,400
$2.52
The company had average operating assets of $502,000 during the year.
Requirement 1:
Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. (Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
Return on investment %
Requirement 2:
For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the data used to compute the original ROI in Requirement (1) above.
(a)
Using Lean Production, the company is able to reduce the average level of inventory by $103,000. (The released funds are used to pay off short-term creditors.) (Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
Amount Effect
Margin %
Turnover
Return on investment %
(b)
The company achieves a cost savings of $8,000 per year by using less costly materials. (Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
Amount Effect
Margin %
Turnover
Return on investment %
(c)
The company issues bonds and uses the proceeds to purchase $121,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $4,000 per year. (Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
Amount Effect
Margin %
Turnover
Return on investment %
(d)
As a result of a more intense effort by salespeople, sales are increased by 20%; operating assets remain unchanged. (Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
Amount Effect
Margin %
Turnover
Return on investment %
(e)
Obsolete inventory carried on the books at a cost of $17,000 is scrapped and written off as a loss. (Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
Amount Effect
Margin %
Turnover
Return on investment %
(f)
The company uses $180,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock. (Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
Amount Effect
Margin %
Turnover
Return on investment %
