Ready Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years. The company has been forced to lower prices so that it can maintain its market share. The operating results for the past 3 years are as follows:

Line Item Description	Year 1	Year 2	Year 3
Sales	$10,000,000	$ 9,500,000	$ 9,000,000
Operating income	1,200,000	1,045,000	945,000
Average assets	15,000,000	15,000,000	15,000,000

For the coming year, Ready's president plans to install a JIT purchasing and manufacturing system. She estimates that inventories will be reduced by 70% during the first year of operations, producing a 20% reduction in the average operating assets of the company, which would remain unchanged without the JIT system. She also estimates that sales and operating income will be restored to Year 1 levels because of simultaneous reductions in operating expenses and selling prices. Lower selling prices will allow Ready to expand its market share.

Conceptual Connection: Suppose that in Year 4 the sales and operating income were achieved as expected, but inventories remained at the same level as in Year 3. Compute the expected ROI, margin, and turnover.

Line Item Description	Answer
ROI	fill in the blank 10%
Margin	fill in the blank 11%
Turnover	fill in the blank 12

Why did the ROI increase over the Year 3 level?

The ROI increased because expenses increased and assets turned over at a lower rate (sales decreased).The ROI increased because expenses decreased and assets turned over at a higher rate (sales increased).

3. Conceptual Connection: Suppose that the sales and net operating income for Year 4 remained the same as in Year 3 but inventory reductions were achieved as projected. Compute the ROI, margin, and turnover.

Line Item Description	Answer
ROI	fill in the blank 14%
Margin	fill in the blank 15%
Turnover	fill in the blank 16

Why did the ROI exceed the Year 3 level?

The ROI increased because assets decreased.The ROI increased because assets increased.

4. Conceptual Connection: Assume that all expectations for Year 4 were realized. Compute the expected ROI, margin, and turnover.

Line Item Description	Answer
ROI	fill in the blank 18%
Margin	fill in the blank 19%
Turnover	fill in the blank 20

Why did the ROI increase over the Year 3 level?