The Abs Shoppe is a regional chain of health clubs. The managers of the clubs, w

Question

The Abs Shoppe is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The Abs Shoppe reported the following results for the past year:

Assume that the manager of the club is able to reduce expenses by $3,480 without any change in sales or operating assets. What would be the club

The Abs Shoppe is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The Abs Shoppe reported the following results for the past year:

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Margin = (Net Operating Income + Reduction in Operating Expenses)/Sales*100 = (27840 + 3480)/870000*100 = 3.6%

Answer is 3.6%.

Part B:

Turnover = Sales/Average Operating Assets = 870000/100000 = 8.70

Answer is 8.70.

Part C:

ROI = Margin*Turnover = 3.6*8.70 = 31.32%

Answer is 31.32%

Notes:

You have to add back reduction in operating expense as a reduction will result in an increase in Net Operating Income.

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.