Silver Fitness is a regional chain of health clubs. The managers of the clubs, who have...

   

Transcribed Image Text:

Silver Fitness is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The company's Colorado Springs' club reported the following results for the past year: Sales Net Operating Income Average Operating Assets $1,400,000 $70,000 $350,000 Required: The following questions are to be considered independently. Carry out all computations to two decimal places. 1. Compute the club's return on investment (ROI). 2. Assume that the manager of the club is able to increase sales by $70,000 and that, as a result, net operating income increases by $18,200. Further assume that this is possible without any increase in operating assets. What would be the club's new return on investment (ROI)? 3. Assume that the manager of the club is able to reduce expenses by $14,000 without any change in sales or operating assets. What would be the club's return on investment (ROI)? 4. Assume that the manager of the club is able to reduce operating assets by $70,000 without any change in sales or net operating income. What would be the club's return on investment (ROI)? 5. Compute the club's profit margin and investment turnover. 6. Assume the manager can increase sales 20% while both profit margin and average operating assets remain unchanged. (a) Compute the club's ROI. (b) Compute the investment turnover. Part 2 Outdoor Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of the company's most popular models appear below. Selling price per unit Variable cost per unit Plastic injection molding machine time required to produce one unit Pounds of plastic per unit Tennis $200 $60 Golf $300 $140 2 minutes 5 minutes 7 lbs. 4 lbs. Ski $255 $55 4 minutes 8 lbs. Required: 1. The total time available on the plastic injection molding machine is the constraint in the production process. Which product would be the most profitable use of this constraint? Which product would be the least profitable use of this constraint? 2. A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of plastic pellets. Which product would be the most profitable use of this constraint? Which product would be the least profitable use of this constraint? Silver Fitness is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The company's Colorado Springs' club reported the following results for the past year: Sales Net Operating Income Average Operating Assets $1,400,000 $70,000 $350,000 Required: The following questions are to be considered independently. Carry out all computations to two decimal places. 1. Compute the club's return on investment (ROI). 2. Assume that the manager of the club is able to increase sales by $70,000 and that, as a result, net operating income increases by $18,200. Further assume that this is possible without any increase in operating assets. What would be the club's new return on investment (ROI)? 3. Assume that the manager of the club is able to reduce expenses by $14,000 without any change in sales or operating assets. What would be the club's return on investment (ROI)? 4. Assume that the manager of the club is able to reduce operating assets by $70,000 without any change in sales or net operating income. What would be the club's return on investment (ROI)? 5. Compute the club's profit margin and investment turnover. 6. Assume the manager can increase sales 20% while both profit margin and average operating assets remain unchanged. (a) Compute the club's ROI. (b) Compute the investment turnover. Part 2 Outdoor Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of the company's most popular models appear below. Selling price per unit Variable cost per unit Plastic injection molding machine time required to produce one unit Pounds of plastic per unit Tennis $200 $60 Golf $300 $140 2 minutes 5 minutes 7 lbs. 4 lbs. Ski $255 $55 4 minutes 8 lbs. Required: 1. The total time available on the plastic injection molding machine is the constraint in the production process. Which product would be the most profitable use of this constraint? Which product would be the least profitable use of this constraint? 2. A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of plastic pellets. Which product would be the most profitable use of this constraint? Which product would be the least profitable use of this constraint?

Answer rating: 100% (QA)

Part 1 Silver Fitness 1 Compute the clubs return on investment ROI ROI Net Operating Income Average ... View the full answer