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 @ 40% Net income Total Unit $ 1,004,000 $ 50.20 602,400 30.12 401,600 20.08 321,600 16.08 80,000 32,000 1.60 $ 48,000 $ 2.40 4.00 The company had average operating assets of $495,000 during the year. Required: 1. Compute the company's margin, turnover, and return on investment (ROI) for the period. For each of the following questions, indicate whether the margin and turnover 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 $129,000. 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 25%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $16,000 is scrapped and written off as a loss, thereby lowering net operating income. 7. At the beginning of the year, the company uses $178,000 of cash (received on accounts receivable) to repurchase some of its common stock Complete this question by entering your answers in the tabs below. 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 Complete this question by entering your answers in the tabs below. 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 Turnover ROI Complete this question by entering your answers in the tabs below. 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 % Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 The company purchases machinery and equipment that increases average operating assets by $129,000. 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 Complete this question by entering your answers in the tabs below. 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 25%; operating assets remain unchanged. (Round your intermediate calculations and final answer to 2 decimal places.) Effect % Margin Turnover ROI % Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 At the beginning of the year, obsolete inventory carried on the books at a cost of $16,000 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 Turnover ROI Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 At the beginning of the year, the company uses $178,000 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 %
