The contribution format income statement for Westex, Inc., for its most recent p

Question

The contribution format income statement for Westex, Inc., for its most recent period is given below Total Sales Variable expenses Unit $1,000,000 $50.00 600,000 30.00 Contribution margin Fixed expenses 400,000 20.00 320,000 16.00 Net operating income Income taxes @ 40% 80,000 32,000 4.00 1.60 Net income $48,000 $ 2.40 The company had average operating assets of $491,000 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 answers to 2 decimal places. Omit the "%" sign in your response.) 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 ROI 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 $10,000 per period by using less costly materials. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "%" sign in your response.) Margin Turnover ROl Effect (Click to select) (Click to select) (Click to select) 4 4 4

Explanation / Answer

1)

Margin = Net Income / Sale

Margin = 48000/1000000

Margin = 4.8%

Turnover = Sale/Asset

Turnover = 1000000/491000

Turnover = 2.04

ROI = Margin*Turnover

ROI = 4.8*2.04

ROI = 9.79%

2)

Margin = Net Income / Sale

Margin = (48000+10000*(1-40%))/1000000

Margin = 5.4%

Margin is Increased

Turnover = Sale/Asset

Turnover = 1000000/491000

Turnover = 2.04

Turnover remain unchanged

ROI = Margin*Turnover

ROI = 5.4*2.04

ROI = 11.02%

ROI increased

3)

Margin = Net Income / Sale

Margin =48000/1000000

Margin = 4.8%

Margin remain unchanged

Turnover = Sale/Asset

Turnover = 1000000/(491000-96000)

Turnover = 2.53

Turnover increased

ROI = Margin*Turnover

ROI = 4.8*2.53

ROI = 12.14%

ROI increased

4)

Margin = Net Income / Sale

Margin = 48000/(1000000+200000)

Margin = 4%

Margin is decreased

Turnover = Sale/Asset

Turnover = 1200000/491000

Turnover = 2.44

Turnover increased

ROI = Margin*Turnover

ROI = 4*2.44

ROI = 9.76%

ROI remain unchanged

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