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

	Total		Unit
Sales	$	992,000	$	49.60
Variable expenses		595,200		29.76
Contribution margin		396,800		19.84
Fixed expenses		320,800		16.04
Net operating income		76,000		3.80
Income taxes @ 40%		30,400		1.52
Net income	$	45,600	$	2.28

The company had average operating assets of $497,000 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 answer to 2 decimal places.)

ROI

15.32

%

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 $9,000 per period by using less costly materials. (Round your answers to 2 decimal places.)

			Effect
Margin		%	Increase
Turnover	2.00		Unchanged
ROI	17.11	%	Increase

3.

Using Lean Production, the company is able to reduce the average level of inventory by $104,000. (The released funds are used to pay off bank loans.) (Round your answers to 2 decimal places.)

			Effect
Margin		%	Unchanged
Turnover			Increase
ROI		%	Increase

4.

Sales are increased by $198,400; operating assets remain unchanged. (Round your answers to 2 decimal places.)

		Effect
Margin		%	Increase
Turnover			Increase
ROI		%	Increase

5.

The company issues bonds and uses the proceeds to purchase $126,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $19,000 per period. Sales remain unchanged. The new, more efficient equipment reduces production costs by $7,000 per period. (Round your answers to 2 decimal places.)

			Effect
Margin		%	Decrease
Turnover			Decrease
ROI		%	Decrease

6.

The company invests $180,000 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 answers to 2 decimal places.)

			Effect
Margin		%	Decrease
Turnover			Decrease
ROI		%	Decrease

7.

Obsolete inventory carried on the books at a cost of $18,000 is scrapped and written off as a loss.(Round your intermediate calculations and final answers to 2 decimal places.)

			Effect
Margin		%	Decrease
Turnover			Increase
ROI		%	Decrease