Question: The contribution format income statement for Westex, Inc., for its most recent period is given below: Total Unit Sales $ 996,000 $ 49.80 Variable expenses
| The contribution format income statement for Westex, Inc., for its most recent period is given below: |
| Total | Unit | ||||
| Sales | $ | 996,000 | $ | 49.80 | |
| Variable expenses | 597,600 | 29.88 | |||
| Contribution margin | 398,400 | 19.92 | |||
| Fixed expenses | 320,400 | 16.02 | |||
| 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 $507,000 during the period. |
| 1. | Compute the company%u2019s return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. (Round your intermediate calculations and final answers 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 $8,000 per period by using less costly materials. (Round your intermediate calculations and final answers to 2 decimal places.) |
| Effect | ||
| Margin | % | |
| Turnover | ||
| ROI | % | |
| 3. | Using Lean Production, the company is able to reduce the average level of inventory by $103,000. (The released funds are used to pay off bank loans.) (Round your intermediate calculations and final answers to 2 decimal places.) |
| Effect | ||
| Margin | % | |
| Turnover | ||
| ROI | % | |
| 4. | Sales are increased by $199,200; operating assets remain unchanged. (Round your intermediate calculations and final answers to 2 decimal places.) |
| Effect | ||
| Margin | % | |
| Turnover | ||
| ROI | % | |
| 5. | The company issues bonds and uses the proceeds to purchase $130,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $11,000 per period. Sales remain unchanged. The new, more efficient equipment reduces production costs by $6,000 per period. (Round your intermediate calculations and final answers to 2 decimal places.) |
| Effect | ||
| Margin | % | |
| Turnover | ||
| ROI | % | |
| 6. | The company invests $175,000 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 | % | |
| Turnover | ||
| ROI | % | |
| 7. | Obsolete inventory carried on the books at a cost of $16,000 is scrapped and written off as a loss.(Round your intermediate calculations and final answers to 2 decimal places.) |
| Effect | ||
| Margin | % | |
| Turnover | ||
| ROI | % | |
| | ||
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