The contribution format income statement for Huerra Company for last year is given below:

	Total		Unit
Sales	$	998,000	$	49.90
Variable expenses		598,800		29.94
Contribution margin		399,200		19.96
Fixed expenses		321,200		16.06
Net operating income		78,000		3.90
Income taxes @ 40%		31,200		1.56
Net income	$	46,800	$	2.34

The company had average operating assets of $493,000 during the year.

Required:

1. Compute the companys return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover.

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 $96,000. (The released funds are used to pay off short-term creditors.)

3. The company achieves a cost savings of $12,000 per year by using less costly materials.