The contribution format income statement for Huerra Company for last year is given below Total Unit Sales $994,000 $49 70 Variable expenses 596,400 29 82 Contribution margin 397,600 19 88 Fixed expenses 315,600 15 78 Net operating income 82,000 4 10 Income taxes 40 32,800 1 64 Net operating income $49,200 $2 46 The company had average operating assets of $490,000 during the year Requirement 1 Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover (Roundinterim calculations and final answers to 2 decimal places Omit the sign in your response ) Return on investment Requirement 2 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 Requirement (1) above (a) 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 ) (Roundinterim calculations and final answers to 2 decimal places Omit the sign in your response ) Amount Effect Margin (Click to select) Increase Unchanged Decrease Turnover (Click to select) Decrease Unchanged Increase Return on investment (Click to select) Increase Unchanged Decrease (b) The company achieves a cost savings of $8,000 per year by using less costly materials (Roundinterim calculations and final answers to 2 decimal places Omit the sign in your response ) Amount Effect Margin (Click to select) Decrease Increase Unchanged Turnover (Click to select) Decrease Increase Unchanged Return on investment (Click to select) Increase Unchanged Decrease (c) 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 $4,000 per year (Roundinterim calculations and final answers to 2 decimal places Omit the sign in your response ) Amount Effect Margin (Click to select) Decrease Increase Unchanged Turnover (Click to select) Decrease Unchanged Increase Return on investment (Click to select) Increase Unchanged Decrease (d) As a result of a more intense effort by salespeople, sales are increased by 20 operating assets remain unchanged (Roundinterim calculations and final answers to 2 decimal places Omit the sign in your response ) Amount Effect Margin (Click to select) Increase Unchanged Decrease Turnover (Click to select) Increase Decrease Unchanged Return on investment (Click to select) Decrease Unchanged Increase (e) Obsolete inventory carried on the books at a cost of $18,000 is scrapped and written off as a loss (Roundinterim calculations and final answers to 2 decimal places Omit the sign in your response ) Amount Effect Margin (Click to select) Increase Decrease Unchanged Turnover (Click to select) Increase Unchanged Decrease Return on investment (Click to select) Decrease Unchanged Increase (f) The company uses $182,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock (Roundinterim calculations and final answers to 2 decimal places Omit the sign in your response ) Amount Effect Margin (Click to select) Unchanged Decrease Increase Turnover (Click to select) Increase Decrease Unchanged Return on investment (Click to select) Unchanged Increase Decrease

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 21, 2024

The contribution format income statement for Huerra Company for last year is given below: Total Unit Sales $994,000 $49.70 Variable expenses 596,400 29.82 Contribution margin

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

		Total	Unit
Sales		$994,000	$49.70
Variable expenses		596,400	29.82
Contribution margin		397,600	19.88
Fixed expenses		315,600	15.78
Net operating income		82,000	4.10
Income taxes @	40 %	32,800	1.64
Net operating income		$49,200	$2.46

The company had average operating assets of $490,000 during the year.

Requirement 1:

Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover.(Roundinterim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

Return on investment

Requirement 2:

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 Requirement (1) above.

(a)

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.)(Roundinterim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

	Amount	Effect
Margin	%
Turnover
Return on investment	%

(b)

The company achieves a cost savings of $8,000 per year by using less costly materials.(Roundinterim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

	Amount	Effect
Margin	%
Turnover
Return on investment	%

(c)

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 $4,000 per year.(Roundinterim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

	Amount	Effect
Margin	%
Turnover
Return on investment	%

(d)

As a result of a more intense effort by salespeople, sales are increased by 20%; operating assets remain unchanged.(Roundinterim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

	Amount	Effect
Margin	%
Turnover
Return on investment	%

(e)

Obsolete inventory carried on the books at a cost of $18,000 is scrapped and written off as a loss.(Roundinterim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

	Amount	Effect
Margin	%
Turnover
Return on investment	%

(f)

The company uses $182,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock.(Roundinterim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)