8/2/2019 Chapter 12 ROI 9% Increase Chapter 12 5 The Income statement for Huera Company for last year Is provided below. Total Sales $44,400,000 Unit 5444.00 C. The company Issues bonds and uses the proceeds to purchase machinery and equipment, thus Less: Variable expenses 35,520,000 355.20 Increasing the average assets by $400,000. Interest on the bonds Is $40,000 per year. Sales remain unchanged. The new more efficient equipment reduces fixed production costs by $20,000 per year Contribution margin 3.880,000 4.440,000 8.80 (Round Intermediate and final answer to 2 decimal places] Less: Fixed expense 14.40 ROI 35.98 % decrease Net operating Income 4.440,000 44.40 Less: Income taxes @ 30%% 1.332,000 13.32 Net Income $ 3,108,000 $ 31.08 The company had average operating assets of $12,000,000 during the year. Required: . Compute the company's ROI for the period using the ROI formula stated In terms of margin and turnover. (Round Intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (Le., 0.1234 should be entered as 12.34).) ROI 37.00 9% d. As a result of a more Intense effort by the sales staff, sales are Increased by 15%; operating assets remain unchanged. (Round Intermediate and final answer to 2 decimal places.) ROI 1%% Increase 2. Consider each of the following questions separately and then compute the new ROI Ogure. Indicate whether the ROI will Increase, decrease, or remain unchanged as a result of the events described. a. By using JIT, 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 Intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (Le., 0.1234 should be entered as 12.34]-} ROI 38.30 % Increase 9. Obsolete Items of Inventory carried on the records at a cost of $110,000 are scrapped and sold for 25% of the book value. (Use full amount of scrap whille calculating average operating assets. Round Intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (Le., 0.1254 should be entered as 12.34).) ROI 9% decrease b. The company achieves a savings of $22 per unit by using cheaper materials. (Round Intermediate and final answer to 2 decimal places.]