Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The contribution format income statement for Huerra Company for last year is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income
The contribution format income statement for Huerra Company for last year is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income Total $1,000,000 600,000 400,000 316,000 84,000 33,600 $ 50,400 Unit $ 50.00 30.00 20.00 15.80 4.20 1.68 $ 2.52 The company had average operating assets of $501,000 during the year. Required: 1. Compute the company's 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 $100,000. (The released funds are used to pay off short-term creditors.) 3. The company achieves a cost savings of $5,000 per year by using less costly materials. 4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assets by $127.000. Interest on the bonds is $18,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $7,000 per year. 5. As a result of a more intense effort by sales people, sales are increased by 20%; operating assets remain unchanged. 5. As a result of a more intense effort by sales people, sales are increased by 20%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $20,000 is scrapped and written off as a loss. 7. At the beginning of the year, the company uses $183,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock
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