The Atlantic Division of Stark Productions Company reported the following result
ID: 2549657 • Letter: T
Question
The Atlantic Division of Stark Productions Company reported the following results for 2016:Sales $4,000,000 Variable costs 3,200,000 Controllable fixed costs 300,000 Average operating assets 2,500,000
Management is considering the following independent alternative courses of action in 2017 in order to maximize the return on investment for the division.
1. Reduce controllable fixed costs by 10% with no change in sales or variable costs. 2. Reduce average operating assets by 10% with no change in controllable margin. 3. Increase sales $500,000 with no change in the contribution margin percentage.
Explanation / Answer
Answer:-Return on investment for 2016 = Income from operations/Average operating assets*100
=$500000/$2500000*100
= 20%
Explanation:-Income from operations:-Sales-Variable costs-Fixed costs
=$4000000-$3200000-$300000
=$500000
Contribution margin =($800000/$4000000)*100
=20%
b)-Return on investments:-
1)-21.2%
2)-22.2%
3)-24%
Explanation:-
PARTICULARS Alternative 1 Alternative 2 Alternative 3 $ $ $ Sales 4000000 4000000 4000000+500000=4500000 Less:- Variable costs 3200000 3200000 4500000*80%=3600000 Contribution margin 800000 800000 900000 Less:- Fixed costs 300000*90%=270000 300000 300000 Income from opreations (a) 530000 500000 600000 Average opreating assets (b) 2500000 2500000*90%=2250000 2500000 Return on investments (c=a/b) 21.2% 22.2% 24%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.