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

	Total	Unit
Sales	$1,006,000	$50.30
Variable Expenses	603,600	30.18
Contribution Margin	402,400	20.12
Fixed Expenses	318,400	15.92
Net Operating Income	84,000	4.20
Income Taxes @ 40%	33,600	1.68
Net Income	50,400	2.52

The company had average operating assets of $502,000 during the year.

Required:

1. Compute the company's 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 $92,000. (The released funds are used to pay off short-term creditors)

3. The company achieves a cost of savings of $7,000 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 $124,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficent equipment erduces production costs by $7,000 per year.

5. As a result of a more intense effort by sales people, sales are increased by 10%; operating assets remain unchanged.

6. At the beginning of the year, obsolete inventory carried on the books at a cost of $16,000 is scrapped and written off as a loss.

7. At the bedinning of the year, the company uses $175,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock.