Chapter Nine Homework 4. value 5.00 points The contribution format income statem

Question

Chapter Nine Homework 4. value 5.00 points The contribution format income statement for Strickland, Inc., for its most recent period is given below Total Unit Sales Variable expenses $990,000 $49.50 594,000 29.70 Contribution margin Fixed expenses 396,000 318,000 19.80 15.90 Net operating income Income taxes @ 40% 78,000 31,200 3.90 1.56 Net income $ 46,800 2.34 The company had average operating assets of $503,000 during the period 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 (i.e., 0.1234 should be entered as 12.34).) ROI 15.53 % For each of the following questions, indicate whether the margin and tunover wil increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROl figure. Consider each question separately, starting in each case from the original ROl computed in (1) above. 2. The company achieves a cost savings of $6,000 per period by using less costly materials. (Round your intermediate calculations and Turnover answers to 2 decimal places. Round your Margin and ROl percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) Effect Margin Turnover ROI

Explanation / Answer

Total Per unit Sales 990000 49.5 Variable Expenses 594000 29.7 Contribution 396000 19.8 Fixed Expenses 318000 15.9 Income Before Tax 78000 3.9 Tax @40% 31200 1.56 Net income 46800 2.34 %age of Margin on sales 4.73% Answer 1. ROI = 46800/503000 x 100 = 9.30% Answer 2. Net Income 46800 Add:Savings 6000 Less Tax on Savings @40% -2400 Net Income 50400 Margin 5.09% Return on Investment 10.02% Effect: Margin increase 0.36% Turnover Unchanged 0 ROI Increased 0.72% Answer 3. Investment 503000 Less:Reduced Inventory 91000 Investment reduced to 412000 Margin 46800 ROI 11.36% Effect: Margin Unchanged 0.00% Turnover Unchanged 0 ROI Increased 2.06% Answer 4. Total Per unit No of units 24000 Sales 1188000 49.5 Variable Expenses 712800 29.7 Contribution 475200 19.8 Fixed Expenses 318000 13.25 Income Before Tax 157200 6.55 Tax @40% 62880 2.62 Net income 94320 3.93 %age of Margin on sales 7.94% ROI ( 94320/503000) 18.75% Fixed expenses are fixed and do not change with increased volume. Effect: Margin Increased (7.94%-4.73%) 3.21% Turnover Increased (198000/990000) 20.00% ROI Increased (18.75%-9.30%) 9.45% Answer 5. Interest on Bond 14000 Saving in Cost 5000 Net additional Expenses 9000 Savings in Tax @40% 3600 Net Increase in Cost 5400 Existing Net Income 46800 Net Margin 41400 Margin %age (41400/990000) 4.18% Existing Assets 503000 Increase in Assets 128000 Total Assets 631000 ROI 6.56% Effect: Margin Increased (6.56%-4.73%) 1.83% Turnover Unchanged 0.00% ROI Decreased (9.30%-6.56%) 2.74%

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