QUESTION 8 (7 marks)

The Pacific Division of Henson Industries reported the following data for the current year.

Sales $4,000,000

Variable costs 2,600,000

Controllable fixed costs 800,000

Average operating assets 5,000,000

Top management is unhappy with the investment center's return on investment (ROI). It asks the manager

of the Pacific Division to submit plans to improve ROI in the next year. The manager believes it is feasible

to consider the following independent courses of action.

1. Increase sales by $400,000 with no change in the contribution margin percentage.

2. Reduce variable costs by $120,000.

3. Reduce average operating assets by 4%

Instructions

(a) Compute the return on investment (ROI) for the current year. Show your work for full marks. (1

mark)

(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to

one decimal.) Show your work for full marks. (6 marks)