Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Tracey Company had the following information for its most recent period: Total Unit % Sales $1,000,000 $50 100% Variable expenses 600,000 30 60% Contribution

The Tracey Company had the following information for its most recent period:
Total Unit %
Sales $1,000,000 $50 100%
Variable expenses 600,000 30 60%
Contribution margin 400,000 $20 40%
Fixed expenses 320,000
Net operating income $80,000
Average operating assets $500,000
Compute the company's return on investment (ROI) for the period using the ROI
formula stated in terms of margin and turnover.
Net operating income $80,000 Correct!
Sales $1,000,000 Correct!
Average operating assets $500,000 Correct!
Margin 8.00% Correct!
Turnover 2.0 Correct!
ROI 16.00% Correct!
Required:
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. Each case is separate so you should return to the original
data for your computations.
Note: Formulas must be used for Margin, Turnover, and ROI. The other cells should be
formulas but I will allow typed in numbers.
(a) The company achieves a cost savings of $10,000 per period by using less costly materials.
Net operating income $90,000 Correct! Type Increase, Decrease, or
Sales $1,000,000 Correct! Unchanged in the space below
Average operating assets $500,000 Correct!
Margin 9.00% Correct! Increase Correct!
Turnover 2.0 Correct! Unchanged Correct!
ROI 18.00% Correct! Increase Correct!
(b) 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 bank loans.)
Net operating income $80,000 Correct! Type Increase, Decrease, or
Sales $1,000,000 Correct! Unchanged in the space below
Average operating assets $400,000 Correct!
Margin 8.00% Correct! Unchanged Correct!
Turnover 2.500 Correct! Increase Correct!
ROI 20.00% Correct! Increase Correct!
(c) Sales are increased by $250,000; operating assets remained unchanged. (Remember,
if sales change, so will variable expenses.)
Sales $1,250,000 Correct!
Variable expenses 750,000 Correct!
Contribution margin 500,000 Correct!
Fixed expenses 320,000 Correct!
Net operating income $180,000 Correct!
Net operating income $180,000 Correct! Type Increase, Decrease, or
Sales $1,250,000 Correct! Unchanged in the space below
Average operating assets $500,000 Correct!
Margin 14.40% Correct! Increase Correct!
Turnover 2.500 Correct! Increase Correct!
ROI 36.00% Correct! Increase Correct!
(d) The company issues bonds and uses the proceeds to purchase $125,000 in machinery
and equipment at the beginning of the period. Sales remain unchanged. The new, more
efficient equipment reduces production costs by $5,000 per period.
Net operating income $180,000 Try Again! Type Increase, Decrease, or
Sales $1,200,000 Try Again! Unchanged in the space below
Average operating assets $495,000 Try Again!
Margin ? Try Again! Increase Correct!
Turnover ? Try Again! Decrease Correct!
ROI ? Try Again! Decrease Correct!
(e) The company invests $180,000 of cash (received from accounts receivable) in a plot
of land that is to be held for possible future use as a plant site.
Net operating income $0 Try Again! Type Increase, Decrease, or
Sales Try Again! Unchanged in the space below
Average operating assets Try Again!
Margin ? Try Again! unchanged Correct!
Turnover ? Try Again! Increase Correct!
ROI ? Try Again! increase Correct!
(f) Obsolete inventory carried on the books at a cost of $20,000 is scrapped and written off
as a loss.
Net operating income Try Again! Type Increase, Decrease, or
Sales Try Again! Unchanged in the space below
Average operating assets Try Again!
Margin ? Try Again! Decrease Correct!
Turnover ? 2.083! Increase Correct!
ROI ? Try Again! Decrease

Correct!

I've answered some, I need help with the ones I was not able to answer (The ones that say "Try Again"). Please Show me the work don't just give me the answer

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