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

	Total		Unit
Sales	$	996,000	$	49.80
Variable expenses		597,600		29.88
Contribution margin		398,400		19.92
Fixed expenses		316,400		15.82
Net operating income		82,000		4.10
Income taxes @ 40%		32,800		1.64
Net income	$	49,200	$	2.46

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.

Margin	4.94	%
Turnover	197.62
ROI	9.76	%

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 $91,000. (The released funds are used to pay off short-term creditors.)

			Effect
Margin	4.94	%	Unchanged
Turnover	244.72		Increase
ROI	12.09	%	Increase

3. The company achieves a cost savings of $11,000 per year by using less costly materials.

			Effect
Margin	6.24	%	Increase
Turnover	197.62		Decrease
ROI	12.34	%	Increase

3a. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assets by $126,000. Interest on the bonds is $14,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $4,000 per year.

			Effect
Margin	8.94	%	Increase
Turnover	1.58		Decrease
ROI	14.15	%	Decrease