The contribution format income statement for Strickland, Inc., for its most recent period is given below:

Total Unit Sales $ 990,000 $ 49.50 Variable expenses 594,000 29.70 Contribution margin 396,000 19.80 Fixed expenses 318,000 15.90 Net operating income 78,000 3.90 Income taxes @ 40% 31,200 1.56 Net income $ 46,800 $ 2.34

The company had average operating assets of $503,000 during the period.

Required: 1.

Compute the companys return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. (Round your intermediate calculations and final answer to 2 decimal places.)

ROI %

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. Consider each question separately, starting in each case from the original ROI computed in (1) above.

2.

The company achieves a cost savings of $6,000 per period by using less costly materials. (Round your intermediate calculations and final answers to 2 decimal places.)

Effect Margin % (Click to select) Decrease Unchanged Increase Turnover (Click to select) Increase Unchanged Decrease ROI % (Click to select) Unchanged Decrease Increase

3.

Using Lean Production, the company is able to reduce the average level of inventory by $91,000. (The released funds are used to pay off bank loans.) (Round your intermediate calculations and final answers to 2 decimal places.)

Effect Margin % (Click to select) Unchanged Decrease Increase Turnover (Click to select) Increase Unchanged Decrease ROI % (Click to select) Unchanged Decrease Increase

4.

Sales are increased by $198,000; operating assets remain unchanged. (Round your intermediate calculations and final answers to 2 decimal places.)

Effect Margin % (Click to select) Decrease Unchanged Increase Turnover (Click to select) Unchanged Decrease Increase ROI % (Click to select) Unchanged Decrease Increase

5.

The company issues bonds and uses the proceeds to purchase $128,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $14,000 per period. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per period. (Round your intermediate calculations and final answers to 2 decimal places.)

Effect Margin % (Click to select) Increase Unchanged Decrease Turnover (Click to select) Decrease Unchanged Increase ROI % (Click to select) Unchanged Increase Decrease

6. The company invests $182,000 of cash (received on accounts receivable) in a plot of land that is to be held for possible future use as a plant site. (Round your intermediate calculations and final answers to 2 decimal places.)

Effect Margin % (Click to select) Increase Decrease Unchanged Turnover (Click to select) Increase Unchanged Decrease ROI % (Click to select) Decrease Unchanged Increase

7.

Obsolete inventory carried on the books at a cost of $17,000 is scrapped and written off as a loss.(Round your intermediate calculations and final answers to 2 decimal places.)

Effect Margin % (Click to select) Unchanged Decrease Increase Turnover (Click to select) Decrease Increase Unchanged ROI % (Click to select) Increase Decrease Unchanged