PROBLEM $11-24$ Return on Investment $($ROI$)$ Analysis LO$11-1$

Last year's contribution format income statement for Huerra Company is given below:

The company had average operating assets of $$2,000,000$ during the year.

Required:

Compute last year's margin, turnover, and return on investment $($ROI$).$

For each of the following questions, indicate whether last year's margin and turnover will increase, decrease, or remain unchanged as a

result of the events described, and then compute the new ROI. Consider each question separately.

Using Lean Production, the company is able to reduce the average level of inventory by $$400,000.$

The company achieves a cost savings of $$32,000$ per year by using less costly materials.

The company purchases machinery and equipment that increase average operating assets by $$500,000.$ Sales remain unchanged. The

new, more efficient equipment reduces production costs by $$20,000$ per year.

As a result of a more intense effort by salespeople, sales are increased by $20\%$; operating assets remain unchanged.

At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $$40,000.$

At the beginning of the year, the company uses $$200,000$ of cash $($received on accounts receivable$)$ to repurchase some of its common

stock.