The South Division of Wiig Company reported the following data for the current y
ID: 2521543 • Letter: T
Question
The South Division of Wiig Company reported the following data for the current year.
Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.
(a) Compute the return on investment (ROI) for the current year. (Round ROI to 1 decimal place, e.g. 1.5.)
(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 1 decimal place, e.g. 1.5.)
Return on investment
Sales $2,929,000 Variable costs 1,962,430 Controllable fixed costs 605,400 Average operating assets 4,974,600Explanation / Answer
Answers
Answer (a)
Answer (b)
Current
Option 1
Option 2
Option 3
Sales
$ 29,29,000.00
$ 32,50,000.00 [2929000 + 321000]
$ 29,29,000.00
$ 29,29,000.00
(-) Variable costs
$ 19,62,430.00 [67%]
$ 21,77,500.00 [67%]
$ 18,12,030.00 [1962430 – 150400]
$ 19,62,430.00
Contribution margin
$ 9,66,570.00 [33% of sale]
$ 10,72,500.00 [33% of increased sale]
$ 11,16,970.00
$ 9,66,570.00
(-) Controllable fixed cost
$ 6,05,400.00
$ 6,05,400.00
$ 6,05,400.00
$ 6,05,400.00
Net operating income (A)
$ 3,61,170.00
$ 4,67,100.00
$ 5,11,570.00
$ 3,61,170.00
Average operating assets (B)
$ 49,74,600.00
$ 49,74,600.00
$ 49,74,600.00
$ 47,25,870.00 [4974600 – 5%]
ROI (A / B)
7.3%
9.4%
10.3%
7.6%
Answer (a)
Answer (b)
Current
Option 1
Option 2
Option 3
Sales
$ 29,29,000.00
$ 32,50,000.00 [2929000 + 321000]
$ 29,29,000.00
$ 29,29,000.00
(-) Variable costs
$ 19,62,430.00 [67%]
$ 21,77,500.00 [67%]
$ 18,12,030.00 [1962430 – 150400]
$ 19,62,430.00
Contribution margin
$ 9,66,570.00 [33% of sale]
$ 10,72,500.00 [33% of increased sale]
$ 11,16,970.00
$ 9,66,570.00
(-) Controllable fixed cost
$ 6,05,400.00
$ 6,05,400.00
$ 6,05,400.00
$ 6,05,400.00
Net operating income (A)
$ 3,61,170.00
$ 4,67,100.00
$ 5,11,570.00
$ 3,61,170.00
Average operating assets (B)
$ 49,74,600.00
$ 49,74,600.00
$ 49,74,600.00
$ 47,25,870.00 [4974600 – 5%]
ROI (A / B)
7.3%
9.4%
10.3%
7.6%
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