The South Division of Viuu Group reported the following data for the current month. Sales.................................................NT$3,000,000 Variable costs...................................1,950,000

Question:

The South Division of Viuu Group reported the following data for the current month.

Sales.................................................NT$3,000,000

Variable costs...................................1,950,000

Controllable fixed costs.....................600,000

Average operating assets...................5,000,000

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 month. The manager believes it is feasible to consider the following independent courses of action.

1. Increase sales by NT$300,000 with no change in the contribution margin percentage.

2. Reduce variable costs by NT$150,000.

3. Reduce average operating assets by 4%.

Instructions

a. Compute the return on investment (ROI) for the current month.

b. Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...

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