A B C D E F G H J K L 1 ROI & Residual Income (14 marks) 2 The contribution format income statement for Sarasota & Company for its year ended February 28, 2022 is given below: 3 Sales units 4 10,000 Total Per Unit 5 Sales $ 501,500 $50.15 6 Variable expenses 300,000 30.00 7 Contribution margin 201,500 $ 20.15 Fixed expenses 9 Operating income 10 Income taxes @ 40% 11 Net income 160,000 41,500 16,600 $ 24,900 12 13 During the year the company had average operating assets of $ 250,000 14 The company's overall minimum required rate of return is 15 16 Required: 14% 17 1(a). Compute the company's ROI for the period using the ROI formula stated in terms of margin and turnover. 18 19 20 Margin Turnover R.O.I. 21 22 23 1(b). Compute the company's residual income 24 For each of the following questions, calculate the new ROI and residual income. Consider each question separately, starting 25 in each case from the original ROI and Residual Income computed in (1) above. 26 27 2. Using lean production, the company is able to reduce the average level of inventory by $ 50,000 (The released funds are used to pay off bank loans.) 28 A 22 B C D E F G H J K 23 1(b). Compute the company's residual income 24 For each of the following questions, calculate the new ROI and residual income. Consider each question separately, starting 25 in each case from the original ROI and Residual Income computed in (1) above. 26 27 2. Using lean production, the company is able to reduce the average level of inventory by $ 50,000 (The released funds are used to pay off bank loans.) 28 29 33 34 30 31 ROI Residual Income 32 3. Operating assets remain unchanged and Sales are increased by ROI $ 50,000 35 Residual Income 36 37 4. 38 At the beginning of the last fiscal year, the company invests possible future use as a plant site. $ 50,000 in cash (received on accounts receivable) in a plot of land that is to be held for 39 40 41 ROI Residual Income 42 43 44