FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The South Division of Wilg Company reported the following data for the current year.
Sales
Variable costs
Controllable fixed costs
Average operating assets
Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is
feasible to consider the following independent courses of action.
1. Increase sales by $300,000 with no change in the contribution margin percentage.
2. Reduce variable costs by $150,000.
3. Reduce average operating assets by 4%.
$3,100,000
2,046,000
600,000
5,000,000
(a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%)
Return on Investment
(b) Using the ROI formula, compute the ROI under each of the proposed courses of action (Round ROI to 2 decimal places, eg. 1.57%)
Action 1
Action 2
Action 3
Return on investment
%
%
56
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Transcribed Image Text:The South Division of Wilg Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 1. Increase sales by $300,000 with no change in the contribution margin percentage. 2. Reduce variable costs by $150,000. 3. Reduce average operating assets by 4%. $3,100,000 2,046,000 600,000 5,000,000 (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%) Return on Investment (b) Using the ROI formula, compute the ROI under each of the proposed courses of action (Round ROI to 2 decimal places, eg. 1.57%) Action 1 Action 2 Action 3 Return on investment % % 56
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