(1.)

Posters.com is a small Internet retailer of high-quality posters. The company has $890,000 in operating assets and fixed expenses of $165,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5,000,000 per year. The companys contribution margin ratio is 8%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 8 cents.

Required:

1. Complete the following table showing the relation between sales and return on investment (ROI).

2. What happens to the companys return on investment (ROI) as sales increase?

(2.)

Fitness Fanatics is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The company's Springfield Club reported the following results for the past year:

Sales	$	760,000
Net operating income	$	15,960
Average operating assets	$	100,000

The following questions are to be considered independently.

Exercise 10-11 Part 1

Required:

1. Compute the Springfield clubs return on investment (ROI). (Do not round intermediate calculations. Round your answer to 2 decimal places.)

2. Assume that the manager of the club is able to increase sales by $76,000 and that, as a result, net operating income increases by $5,776. Further assume that this is possible without any increase in average operating assets. What would be the clubs return on investment (ROI)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

3. Assume that the manager of the club is able to reduce expenses by $3,040 without any change in sales or average operating assets. What would be the clubs return on investment (ROI)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

4. Assume that the manager of the club is able to reduce average operating assets by $20,000 without any change in sales or net operating income. What would be the clubs return on investment (ROI)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospitals lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs.

Mr. Fleming has asked you to evaluate costs in the hospitals lab for the past month. The following information is available:

1. Two types of tests are performed in the labblood tests and smears. During the past month, 750 blood tests and 3,000 smears were performed in the lab.

2. Small glass plates are used in both types of tests. During the past month, the hospital purchased 15,000 plates at a cost of $48,450. 2,000 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.

3. During the past month, 2,000 hours of labor time were recorded in the lab at a cost of $21,600.

4. The labs variable overhead cost last month totaled $15,200.

Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:

Plates: Three plates are required per lab test. These plates cost $3.40 each and are disposed of after the test is completed.

Labor: Each blood test should require 0.8 hours to complete, and each smear should require 0.40 hours to complete. The average cost of this lab time is $11.20 per hour.

Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $7.10 per hour.

Required:

1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month.

2. For labor cost in the lab:

a. Compute a labor rate variance and a labor efficiency variance.

b. In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior technicians and three-fourths assistants. Would you recommend that this policy be continued?

3-a. Compute the variable overhead rate and efficiency variances.

3-b. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance?

for Q. 1

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Sales	Net Operating	Average Operating	ROI
	Income	Assets	%
$4,500,000	$195,000	$890,000		%
$4,600,000		$890,000		%
$4,700,000		$890,000		%
$4,800,000		$890,000		%
$4,900,000		$890,000		%
$5,000,000		$890,000		%