Problem 11-24 (Algo) Return on Investment (ROI) Analysis (LO11-1) The contribution format income statement for Huerra Company for last year is given below. Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes 400 Net income Total $1,000,000 600.000 400,000 322.000 78,000 31,200 5 46.800 Unit $50.00 30.00 20.00 16.10 3.90 1.56 $ 2.34 The company had average operating assets of $510,000 during the year. Required: 1. Compute the company's margin, turnover, and return on investment (Ron) for the period. For each of the following questions, indicate whether the margin and tumover will increase, decrease or remain unchanged as a result of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the data used to compute the original ROI in (1) above. 2. Using Lean Production, the company is able to reduce the average level of inventory by $101,000 3. The company achieves a cost savings of $9,000 per year by using less costly materials. 4. The company purchases machinery and equipment that increases average operating assets by $124,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $4,000 per year. 5. As a result of a more intense effort by sales people, sales are increased by 10%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a loss, thereby lowering net operating income. 7. At the beginning of the year, the company uses $185,000 of cash (received on accounts receivable) to repurchase some of its common stock a Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Compute the company's margin, turnover, and return on Investment (ROI) for the period. (Round your intermediate calculations and final answer to 2 decimal places.) % Margin Turnover ROI % RR Required 2 > Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Using Lean Production, the company is able to reduce the average level of Inventory by $101,000. (Round your intermediate calculations and final answer to 2 decimal places.) Effect Margin Tumover ROI Prey 19 of 21 Next Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 The company achieves a cost savings of $9,000 per year by using less costly materials. (Round your intermediate calculations and final answer to 2 decimal places.) Effect Margin Turnover ROI this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required Required 6 Required 7 The company purchases machinery and equipment that increases average operating assets by $124,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $4,000 per year. (Do not round Intermediate calculations and round your final answers to 2 decimal places.) Effect Margin Turnover ROI Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 As a result of a more intense effort by sales people, sales are increased by 10%; operating assets remain unchanged. (Round your intermediate calculations and final answer to 2 decimal places.) Effect Margin Turnover ROI Required 1 Required 2 Required 3 Required 4 Required Required 6 Required 7 At the beginning of the year, obsolete Inventory carried on the books at a cost of $15,000 is scrapped and written off as a loss, thereby lowering net operating income. (Round your intermediate calculations and final answer to 2 decimal places.) Effect Margin Tumover ROI Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 At the beginning of the year, the company uses $185,000 of cash (received on accounts receivable) to repurchase some of its common stock. (Round your intermediate calculations and final answer to 2 decimal places.) Effect Margin Turnover ROI
