The contribution format income statement for Huerra Company for last year is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income Total $ 1,002,000 Unit $ 50.10 601,200 30.06 400,800 20.04 320,800 16.04 80,000 4.00 32,000 1.60 $ 48,000 $ 2.40 The company had average operating assets of $497,000 during the year. Required: 1. Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a re of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the d used to compute the original ROI in (1) above. 2. Using Lean Production, the company is able to reduce the average level of inventory by $98,000. (The released funds are used t pay off short-term creditors.) 3. The company achieves a cost savings of $8,000 per year by using less costly materials. 4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating asse by $121,000. Interest on the bonds is $12,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per year. 5. As a result of a more intense effort by salespeople, sales are increased by 20%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $19,000 is scrapped and written off as a loss. 7. At the beginning of the year, the company uses $177,000 of cash (received on accounts receivable) to repurchase and retire some its common stock.
The contribution format income statement for Huerra Company for last year is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income Total $ 1,002,000 Unit $ 50.10 601,200 30.06 400,800 20.04 320,800 16.04 80,000 4.00 32,000 1.60 $ 48,000 $ 2.40 The company had average operating assets of $497,000 during the year. Required: 1. Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a re of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the d used to compute the original ROI in (1) above. 2. Using Lean Production, the company is able to reduce the average level of inventory by $98,000. (The released funds are used t pay off short-term creditors.) 3. The company achieves a cost savings of $8,000 per year by using less costly materials. 4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating asse by $121,000. Interest on the bonds is $12,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per year. 5. As a result of a more intense effort by salespeople, sales are increased by 20%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $19,000 is scrapped and written off as a loss. 7. At the beginning of the year, the company uses $177,000 of cash (received on accounts receivable) to repurchase and retire some its common stock.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I need requiremetns 1-7 answered from this question Please. Thank you
Transcribed Image Text:The contribution format income statement for Huerra Company for last year is given below:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Income taxes @ 40%
Net income
Total
$ 1,002,000
Unit
$ 50.10
601,200
30.06
400,800
20.04
320,800
16.04
80,000
4.00
32,000
1.60
$ 48,000
$ 2.40
The company had average operating assets of $497,000 during the year.
Required:
1. Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover.
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 data
used to compute the original ROI in (1) above.
2. Using Lean Production, the company is able to reduce the average level of inventory by $98,000. (The released funds are used to
pay off short-term creditors.)
3. The company achieves a cost savings of $8,000 per year by using less costly materials.
4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assets
by $121,000. Interest on the bonds is $12,000 per year. Sales remain unchanged. The new, more efficient equipment reduces
production costs by $5,000 per year.
5. As a result of a more intense effort by salespeople, sales are increased by 20%; operating assets remain unchanged.
6. At the beginning of the year, obsolete inventory carried on the books at a cost of $19,000 is scrapped and written off as a loss.
7. At the beginning of the year, the company uses $177,000 of cash (received on accounts receivable) to repurchase and retire some of
its common stock.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3 Required 4
Required 5
Required 6 Required 7
Compute the company's 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.)
Margin
Turnover
ROI
%
%
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