The green division of Campana Company reported the following data for the current year:
Sales...............................................................$3,000,000
Variable costs......................................................1,980,000
Controllable fixed costs.............................................600,000
Average operating assets.........................................5,000,000
Top management is unhappy with the investment centre's return on investment. It asks the manager of the green division to submit plans to improve the ROI in the next year. The manager believes it is reasonable to consider each of the following independent courses of action.
1. Increase sales by $320,000 with no change in the contribution margin percentage.
2. Reduce variable costs by $150,000.
3. Reduce average operating assets by 4%.
Instructions
(a) Calculate the return on investment for the current year.
(b) Using the ROI formula, calculate the ROI under each of the proposed courses of action.