ezto.mheducation com Ch 12 Homework Check Your HeadGum High and Mighty: 130: Tha

Question

ezto.mheducation com Ch 12 Homework Check Your HeadGum High and Mighty: 130: Thanksgiving Power Hour LIVE wNi The contribution format income statement for Huerra Company for last year is given below: Total Unit Sales Variable expenses Contribution margin Fixed expenses Net operaling income Income taxes @ 30% Net income 4,000,000 S 80.00 56.00 24.00 16.80 7.20 2.16 S 252,000 S 5.04 2,800,000 1,200,000 840,000 360,000 108,000 The company had average operating assets of $2,000,000 during the year. Required 1. Compute the company's retum on investment (ROI) for the period using the ROl formula stated in terms of margin and turnover. (Round your answers to 2 decimal place.) Margin Tunover ROI 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 ROl figure. Consider each question separately, starting in each case from the data used to compute the original ROl in (1) above. 2. Using Lean Production, the company is able to reduce the average level of inventory by $400,000. (The released funds are used to pay off short-term creditors.) (Round your answers to 2 decimal places.) Effect Margin Tumover ROI

Explanation / Answer

Answer 1. Margin = Net Operating Income / Sales Turnover = Sales / Average Operating Assets Return on Investment = Margin X Turnover Margin - $360,000 / $4,000,000 9.00% Turnover - $4,000,000 / $2,000,000           2.00 ROI - 9% X 2 18.00% Answer 2. Margin - $360,000 / $4,000,000 9.00% No Change Turnover - $4,000,000 / ($2,000,000 - $400,000)           2.50 Increase ROI - 9% X 2.50 22.50% Increase Answer 3. Margin - ($360,000 + $32,000) / $4,000,000 9.80% No Change Turnover - $4,000,000 / $2,000,000           2.00 No Change ROI - 9.80% X 2 19.60% Increase Answer 4. Margin - $380,000 / $4,000,000 9.50% Increase Turnover - $4,000,000 / $2,500,000           1.60 Decrease ROI - 9.50% X 1.60 15.20% Decrease

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