Last year$$s contribution format income statement for Huerra Company is given below:

Total Unit

Sales $ $1,008,000$ $ $50\mathrm{.}40$

Variable expenses $604,80030\mathrm{.}24$

Contribution margin $403,20020\mathrm{.}16$

Fixed expenses $321,20016\mathrm{.}06$

Net operating income $82,0004\mathrm{.}10$

Income taxes @ $40\%32,8001\mathrm{.}64$

Net income $ $49,200$ $ $2\mathrm{.}46$

The company had average operating assets of $$497,000$ during the year.

Required:

Compute last year$$s margin, turnover, and return on investment $($ROI$).$

For each of the following questions, indicate whether last year$$s margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI. Consider each question separately.

Using Lean Production, the company is able to reduce the average level of inventory by $$106,000.$

The company achieves a cost savings of $$13,000$ per year by using less costly materials.

The company purchases machinery and equipment that increase average operating assets by $$129,000.$ Sales remain unchanged. The new, more efficient equipment reduces production costs by $$5,000$ per year.

As a result of a more intense effort by sales people, sales are increased by $15\%$; operating assets remain unchanged.

At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $$15,000.$

At the beginning of the year, the company uses $$183,000$ of cash $($received on accounts receivable$)$ to repurchase some of its common stock.

Answer rating: 100% (QA)

To calculate last years margin turnover and return on investment ROI we can use the following formulas Margin Net Income Sales Turnover Sales Average ... View the full answer