The contribution format income statement for Huerra Company for last year is given below Total Unit Sales $ 1,008,000 $ 50 40 Variable expenses 604,800 30 24 Contribution margin 403,200 20 16 Fixed expenses 323,200 16 16 Net operating income 80,000 4 00 Income taxes 40 32,000 1 60 Net income $ 48,000 $ 2 40 The company had average operating assets of $499,000 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 (Round your intermediate calculations and final answer to 2 decimal places ) Margin 7 94 Turnover 2 02 ROI 16 03 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 $95,000 (The released funds are used to pay off short term creditors ) (Round your answers to 2 decimal places ) Effect Margin 7 94 Unchanged Turnover 2 50 Increase ROI 19 80 Increase 3 The company achieves a cost savings of $7,000 per year by using less costly materials (Round your answers to 2 decimal places ) NEED ANSWER Effect Margin Increase Turnover Increase ROI Increase 4 The company issues bonds and uses the proceeds to purchase $122,000 in machinery and equipment at the beginning of the period Interest on the bonds is $14,000 per year Sales remain unchanged The new, more efficient equipment reduces production costs by $6,000 per year (Round your answers to 2 decimal places ) NEED Answer Effect Margin Turnover ROI 5 Sales are increased by 25 operating assets remain unchanged (Round your answers to 2 decimal places ) NEED ANSWER Effect Margin Turnover ROI 6 Obsolete inventory carried on the books at a cost of $18,000 is scrapped and written off as a loss (Round your answers to 2 decimal places ) NEED ANSWER Effect Margin Turnover ROI 7 The company uses $178,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock (Round your answers to 2 decimal places ) NEED ANSWER Effect Margin Turnover ROI

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The contribution format income statement for Huerra Company for last year is given below: Total Unit Sales $ 1,008,000 $ 50.40 Variable expenses 604,800 30.24

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

	Total		Unit
Sales	$	1,008,000	$	50.40
Variable expenses		604,800		30.24
Contribution margin		403,200		20.16
Fixed expenses		323,200		16.16
Net operating income		80,000		4.00
Income taxes @ 40%		32,000		1.60
Net income	$	48,000	$	2.40

The company had average operating assets of $499,000 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. (Round your intermediate calculations and final answer to 2 decimal places.)


Margin	7.94	%
Turnover	2.02
ROI	16.03	%

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 $95,000. (The released funds are used to pay off short-term creditors.) (Round your answers to 2 decimal places.)

			Effect
Margin	7.94	%	Unchanged
Turnover	2.50		Increase
ROI	19.80	%	Increase

3. The company achieves a cost savings of $7,000 per year by using less costly materials. (Round your answers to 2 decimal places.) NEED ANSWER

		Effect
Margin	%	Increase
Turnover		Increase
ROI	%	Increase

4. The company issues bonds and uses the proceeds to purchase $122,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $14,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $6,000 per year. (Round your answers to 2 decimal places.) NEED Answer

		Effect
Margin	%
Turnover
ROI	%

5. Sales are increased by 25%; operating assets remain unchanged. (Round your answers to 2 decimal places.) NEED ANSWER

		Effect
Margin	%
Turnover
ROI	%

6. Obsolete inventory carried on the books at a cost of $18,000 is scrapped and written off as a loss. (Round your answers to 2 decimal places.) NEED ANSWER

		Effect
Margin	%
Turnover
ROI	%

7. The company uses $178,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock. (Round your answers to 2 decimal places.) NEED ANSWER