The contribution format income statement for Huerra Company for last year is giv

Question

The contribution format income statement for Huerra Company for last year is given below: Total Unit Sales Variable expenses Contribution margin Fixed expenses Net operating income income taxes @ 40% Net income 601,200 400,800 324,800 76,000 30,400 $ 45,600 $ 1,002.000 S 50.10 30.06 20.04 16.24 3.80 1.52 S 2.28 The company had average operating assets of $492,000 during the year Required 1. Compute the company's return on investment (ROI) for the period using the ROl formula stated in terms of margin and turnover. (Round your intermediate calculations and final answer to 2 decimal places.) Margin Turnove ROI 7.58 % 2.04 15.541% For each of the following questions, indicate whether the margin and tunover 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 (1) above. 2. Using Lean Production, the company is able to reduce the average level of inventory by $101,000. (The released funds are used to pay off short-term creditors.) (Round your answers to 2 decimal places.) Effect Margin Tumover ROI 7.581% 2.56 19.44 % ase

Explanation / Answer

Solution 1:

Margin = Net operating Income / Sales = $76,000 / $1,002,000 = 7.58%

Turnover = Sales / Average operating assets = $1,002,000 / $492,000 = 2.04

ROI = Margin * Turnover = 7.58% * 2.04 = 15.46%

Solution 2:

New average operating assets = $492,000 - $101,000 = $391,000

Margin = Net operating Income / Sales = $76,000 / $1,002,000 = 7.58% - Unchaged

Turnvoer = Turnover = Sales / Average operating assets = $1,002,000 / $391,000 = 2.56 Increase

ROI = 7.58% * 2.56 = 19.41% Increase

Solution 3:

New Operating income = $76,000 + $15,000 = $91,000

Margin = Net operating Income / Sales = $91,000 / $1,002,000 = 9.08% - Increase

Turnvoer = Turnover = Sales / Average operating assets = $1,002,000 / $492,000 = 2.04 Unchanged

ROI = 9.08% * 2.04 = 18.52% Increase

Solution 4:

New operating assets = $492,000 + $123,000 = $615,000

New Operating income = $76,000 + $3,000 = $79,000

Margin = Net operating Income / Sales = $79,000 / $1,002,000 = 7.88% - Increase

Turnvoer = Turnover = Sales / Average operating assets = $1,002,000 / $615,000 = 1.63 Decrease

ROI = 7.88% * 1.63 = 12.84% Decrease

Note: I have answered first 4 parts as per chegg policy. Kindly post separate question for answer of remaining parts.

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