The Red Division of Tarkington Company reported the following data for the current year. Sales .......... $3,000,000

Question:

The Red Division of Tarkington Company reported the following data for the current year.
Sales .......... $3,000,000
Variable costs ...... 1,950,000
Controllable fixed costs .. 600,000
Average operating assets . 5,000,000
Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the Red Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.
1. Increase sales by $320,000 with no change in the percentage.
2. Reduce variable costs by $100,000.
3. Reduce average operating assets by 4%.
Instructions
(a) Compute the return on investment (ROI) for the current year.
(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...