Return on Investment, Margin, Turnover 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: Year 1 Year 2 Year 3 Sales $12,500,000 $ 9,500,000 $ 9,000,000 Operating income 1,200,000 1,445,000 945,000 Average assets 15,000,000 15,000,000 18,000,000 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. (Note: Round all numbers to two decimal places.) Required: 1. Compute the ROI, margin, and turnover for Years 1, 2, and 3. Year 1 Year 2 Year 3 ROI fill in the blank 1 % fill in the blank 2 % fill in the blank 3 % Margin fill in the blank 4 % fill in the blank 5 % fill in the blank 6 % Turnover fill in the blank 7 fill in the blank 8 fill in the blank 9 2. 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. 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 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. 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. 4. Conceptual Connection: Assume that all expectations for Year 4 were realized. Compute the expected ROI, margin, and turnover. 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? The ROI increased because expenses decreased and assets turned over at a higher rate.

Return on Investment, Margin, Turnover 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: Year 1 Year 2 Year 3 Sales $12,500,000 $ 9,500,000 $ 9,000,000 Operating income 1,200,000 1,445,000 945,000 Average assets 15,000,000 15,000,000 18,000,000 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. (Note: Round all numbers to two decimal places.) Required: 1. Compute the ROI, margin, and turnover for Years 1, 2, and 3. Year 1 Year 2 Year 3 ROI % % % Margin % % % Turnover 2. 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. ROI % Margin % Turnover Why did the ROI increase over the Year 3 level? The ROI increased because expenses decreased and assets turned over at a higher rate (sales increased). 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. ROI % Margin % Turnover Why did the ROI exceed the Year 3 level? The ROI increased because assets decreased. 4. Conceptual Connection: Assume that all expectations for Year 4 were realized. Compute the expected ROI, margin, and turnover. ROI % Margin % Turnover Why did the ROI increase over the Year 3 level? The ROI increased because expenses decreased and assets turned over at a higher rate. V