Last year’s contribution format income statement for Huerra Company is given below:
Total | Unit | |
---|---|---|
Sales | $ 1,002,000 | $ 50.10 |
Variable expenses | 601,200 | 30.06 |
Contribution margin | 400,800 | 20.04 |
Fixed expenses | 316,800 | 15.84 |
Net operating income | 84,000 | 4.20 |
Income taxes @ 40% | 33,600 | 1.68 |
Net income | $ 50,400 | $ 2.52 |
The company had average operating assets of $491,000 during the year.
Required:
- Compute last year’s margin, turnover, and
return on investment (ROI).For each of the following questions, indicate whether last year’s margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI. Consider each question separately.
- Using Lean Production, the company is able to reduce the average level of inventory by $100,000.
- The company achieves a cost savings of $10,000 per year by using less costly materials.
- The company purchases machinery and equipment that increase average operating assets by $125,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $8,000 per year.
- As a result of a more intense effort by sales people, sales are increased by 10%; operating assets remain unchanged.
- At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $19,000.
- At the beginning of the year, the company uses $184,000 of cash (received on
accounts receivable ) to repurchase some of its common stock.
required questions
As a result of a more intense effort by sales people, sales are increased by 10%; operating assets remain unchanged.
Note: Round your intermediate calculations and final answer to 2 decimal places.
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and
At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $19,000.
Note: Round your intermediate calculations and final answer to 2 decimal places.
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