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 $ 1,006,000 $ 50.30 Variable expenses 603,600 30.18

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 322,400 16.12

Net operating income 80,000 4.00
Income taxes @ 40% 32,000 1.60

Net income $ 48,000 $ 2.40

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

1.

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.

Mragin: ______%
Turnover: ______
ROL: ______%

2.

Using Lean Production, the company is able to reduce the average level of inventory by $106,000. (The released funds are used to pay off short-term creditors.) (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin: ______% Effect
Tunover:______
ROI: _____%

3. The company achieves a cost savings of $7,000 per year by using less costly materials. (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin: ______% Effect
Tunover:______
ROI: ______%

4. The company issues bonds and uses the proceeds to purchase $123,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $18,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $6,000 per year. (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin: _______% Effect
Turnover: _______
ROI: _______%

5.

Sales are increased by 20%; operating assets remain unchanged. (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin: ______% Effect
Turnover: _____
ROI: _____%

6. Obsolete inventory carried on the books at a cost of $17,000 is scrapped and written off as a loss.(Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin: ______% Effect
Turnover: ______
ROI: ______%

7.

The company uses $176,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock. (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin: _____% Effect
Turnover: _____
ROI: _____%

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

Students also viewed these Accounting questions

Question

4. Choose appropriate and powerful language

Answered: 1 week ago

Question

2. Choose an appropriate organizational pattern for your speech

Answered: 1 week ago