Question
The Blue division of the Leaf Company reported the following data for the current year: Sales $2,600,000 Variable Costs $2,100,000 Controllable Fixed Costs $450,000 Average
The Blue division of the Leaf Company reported the following data for the current year:
Sales | $2,600,000 |
Variable Costs | $2,100,000 |
Controllable Fixed Costs | $450,000 |
Average Operating Assets | $5,050,000 |
Senior Management is unhappy with the investment centres return on investment. It asks the manager of the Blue division to submit plans to improve the ROI in the next year. The manager believes it is reasonable to consider each of the following independent courses of action
1. Increase sales by $270,000 with no change in the contribution margin percentage
2. Reduce variable costs by $120,000 3. Reduce average operating assets by 4.5%
3. Reduce average operating assets by 4.5%
Required :
a. Calculate the return on investment for the current year.
b. Using the ROI formula, calculate the ROI under each of the proposed courses of action (Round to one decimal)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started