Module 5 Case 4 The contribution format income statement for Huerce Company for last year is given below: Total Unit Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 30% Net operating income $4,000,000 2,800,000 1,200,000 840,000 360,000 108,000 $ 252,000 $80.00 56.00 24.00 16.80 7.20 2.16 $ 5.04 The company had average operating assets of $2,000,000 during the year. Required: 1. Using Lean Production, the company is able to reduce the average level of inventory by $400,000. Sales and profits will remain the same. (The released funds are used to pay off short-term creditors.) 2. The company achieves a cost savings of $32,000 per year by using less costly materials (no effect on inventory levels in $$). 3. The company reduces fixed expenses by 10% by cutting advertising. This results in a 10% reduction in sales. Assets remain unchanged. 4. After spending $50,000 on training of salespeople, sales are increased by 20%; operating assets remain unchanged. 5. Obsolete inventory carried on the books at a cost of $60,000 is scrapped and written off as a loss. 6. The company borrows $200,000 from the bank and invests in more efficient equipment, as a result, overall sales do not change, but variable expenses decrease by 10% 1. For 2 through 7, just state if Margin will increase (1), Decrease (D), or remain the same (NA), Turnover will I, D, or NA. HINT: carry to the nearest 2 decimals of a %; may need to plug in numbers if both numerator and denominator move in the same direction (i.e.numerator or denominator both increase or both decrease). Margin = Turnover = Margin = 2. Turnover = Margin = 3. Turnover = Margin = 4. Turnover = Margin = 5. Turnover = Margin = 6. Turnover =