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

$$

$$ Total Unit

Sales $

$1$

$,$

$0$

$0$

$2$

$,$

$0$

$0$

$0$

$$$

$5$

$0$

$.$

$1$

$0$

Variable expenses

$6$

$0$

$1$

$,$

$2$

$0$

$0$

$3$

$0$

$.$

$0$

$6$

Contribution margin

$4$

$0$

$0$

$,$

$8$

$0$

$0$

$2$

$0$

$.$

$0$

$4$

Fixed expenses

$3$

$1$

$6$

$,$

$8$

$0$

$0$

$1$

$5$

$.$

$8$

$4$

Net operating income

$8$

$4$

$,$

$0$

$0$

$0$

$4$

$.$

$2$

$0$

Income taxes @

$4$

$0$

$\%$

$3$

$3$

$,$

$6$

$0$

$0$

$1$

$.$

$6$

$8$

Net income $

$5$

$0$

$,$

$4$

$0$

$0$

$$$

$2$

$.$

$5$

$2$

$$

The company had average operating assets of $

$4$

$9$

$7$

$,$

$0$

$0$

$0$

$$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. MARGIN:

$\_$

$\_$

$\_$

$\_$

$\_$

$\%$

$$TURNOVER:

$\_$

$\_$

$\_$

$\_$

$\_$

$$ROI:

$\_$

$\_$

$\_$

$\_$

$\%$

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 $

$1$

$0$

$9$

$,$

$0$

$0$

$0$

$.$

$($

The released funds are used to pay off short

$-$

term creditors.

$)$

MARGIN:

$\_$

$\_$

$\_$

$\_$

$\_$

$\%$

$$TURNOVER:

$\_$

$\_$

$\_$

$\_$

$\_$

$$ROI:

$\_$

$\_$

$\_$

$\_$

$\%$

$3$

$.$

$$The company achieves a cost savings of $

$7$

$,$

$0$

$0$

$0$

$$per year by using less costly materials.MARGIN:

$\_$

$\_$

$\_$

$\_$

$\_$

$\%$

$$TURNOVER:

$\_$

$\_$

$\_$

$\_$

$\_$

$$ROI:

$\_$

$\_$

$\_$

$\_$

$\%$

$4$

$.$

$$The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assets by $

$1$

$2$

$1$

$,$

$0$

$0$

$0$

$.$

$$Interest on the bonds is $

$1$

$9$

$,$

$0$

$0$

$0$

$$per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $

$5$

$,$

$0$

$0$

$0$

$$per year.MARGIN:

$\_$

$\_$

$\_$

$\_$

$\_$

$\%$

$$TURNOVER:

$\_$

$\_$

$\_$

$\_$

$\_$

$$ROI:

$\_$

$\_$

$\_$

$\_$

$\%$

$5$

$.$

$$As a result of a more intense effort by salespeople, sales are increased by

$2$

$5$

$\%$

; operating assets remain unchanged.MARGIN:

$\_$

$\_$

$\_$

$\_$

$\_$

$\%$

$$TURNOVER:

$\_$

$\_$

$\_$

$\_$

$\_$

$$ROI:

$\_$

$\_$

$\_$

$\_$

$\%$

$6$

$.$

$$At the beginning of the year, obsolete inventory carried on the books at a cost of $

$1$

$8$

$,$

$0$

$0$

$0$

$$is scrapped and written off as a loss.MARGIN:

$\_$

$\_$

$\_$

$\_$

$\_$

$\%$

$$TURNOVER:

$\_$

$\_$

$\_$

$\_$

$\_$

$$ROI:

$\_$

$\_$

$\_$

$\_$

$\%$

$7$

$.$

$$At the beginning of the year, the company uses $

$1$

$8$

$4$

$,$

$0$

$0$

$0$

$$of cash

$($

received on accounts receivable

$)$

$$to repurchase and retire some of its common stock.MARGIN:

$\_$

$\_$

$\_$

$\_$

$\_$

$\%$

$$TURNOVER:

$\_$

$\_$

$\_$

$\_$

$\_$

$$ROI:

$\_$

$\_$

$\_$

$\_$

$\%$