Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The contribution format income statement for Huerra Company for last year is given below: Total Unit Sales $ 1,002,000 $ 50.10 Variable expenses 601,200 30.06

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

Total Unit
Sales $ 1,002,000 $ 50.10
Variable expenses 601,200 30.06
Contribution margin 400,800 20.04
Fixed expenses 324,800 16.24
Net operating income 76,000 3.80
Income taxes @ 40% 30,400 1.52
Net income $ 45,600 $ 2.28

The company had average operating assets of $498,000 during the year.

Required:

1. Compute the companys margin, turnover, and return on investment (ROI) for the period.

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 $107,000.

3. The company achieves a cost savings of $5,000 per year by using less costly materials.

4. The company purchases machinery and equipment that increases average operating assets by $125,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per year.

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 $16,000 is scrapped and written off as a loss, thereby lowering net operating income.

7. At the beginning of the year, the company uses $180,000 of cash (received on accounts receivable) to repurchase some of its common stock.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Leading The Internal Audit Function

Authors: Lynn Fountain

1st Edition

0367568004, 9780367568009

More Books

Students also viewed these Accounting questions

Question

From a social standpoint, what is the problem with monopoly?

Answered: 1 week ago

Question

What is involved in the administration of a labor agreement?

Answered: 1 week ago

Question

What are topics included in virtually all labor agreements?

Answered: 1 week ago