Problem 10-20 Return on Investment (ROI) Analysis [LO10-1] 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 Unit $ 996,000 $ 49.80 597,600 29.88 398,400 19.92 318,400 15.92 4.00 1.60 $2.40 80,000 32,000 $ 48,000 The company had average operating assets of $496,000 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 $96,000. (The released funds are used to pay off short-term creditors.) 3. The company achieves a cost savings of $7,000 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 $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $8,000 per year. 5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 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.
Problem 10-20 Return on Investment (ROI) Analysis [LO10-1] 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 Unit $ 996,000 $ 49.80 597,600 29.88 398,400 19.92 318,400 15.92 4.00 1.60 $2.40 80,000 32,000 $ 48,000 The company had average operating assets of $496,000 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 $96,000. (The released funds are used to pay off short-term creditors.) 3. The company achieves a cost savings of $7,000 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 $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $8,000 per year. 5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]
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
996,000
597,600
398,400
19.92
318,400 15.92
4.00
1.60
The company had average operating assets of $496,000 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.
Unit
$ 49.80
29.88
80,000
32,000
$ 48,000 $ 2.40
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 $96,000. (The released funds are used to
pay off short-term creditors.)
3. The company achieves a cost savings of $7,000 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 $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reduces
production costs by $8,000 per year.
Margin
Turnover
ROI
5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.
6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 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.
6.02%
2.02 X
16.26 %
Required 1 Required 2 Required 3
Complete this question by entering your answers in the tabs below.
Answer is complete but not entirely correct.
Required 4 Required 5
At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a
loss. (Round your intermediate calculations and final answers to 2 decimal places.)
Effect
Decrease ✔
Incre
✓
Decrease
Required 6
< Required 5
Required 7
Required 7 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F509e5958-8244-4a2f-8465-f7fef11461d8%2F80ec63a2-ce03-440c-91f8-45b6f00edc24%2Fyzx95au_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]
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
996,000
597,600
398,400
19.92
318,400 15.92
4.00
1.60
The company had average operating assets of $496,000 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.
Unit
$ 49.80
29.88
80,000
32,000
$ 48,000 $ 2.40
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 $96,000. (The released funds are used to
pay off short-term creditors.)
3. The company achieves a cost savings of $7,000 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 $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reduces
production costs by $8,000 per year.
Margin
Turnover
ROI
5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.
6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 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.
6.02%
2.02 X
16.26 %
Required 1 Required 2 Required 3
Complete this question by entering your answers in the tabs below.
Answer is complete but not entirely correct.
Required 4 Required 5
At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a
loss. (Round your intermediate calculations and final answers to 2 decimal places.)
Effect
Decrease ✔
Incre
✓
Decrease
Required 6
< Required 5
Required 7
Required 7 >
![Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]
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
996,000
597,600
The company had average operating assets of $496,000 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.
Margin
Turnover
ROI
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 $96,000. (The released funds are used to
pay off short-term creditors.)
3. The company achieves a cost savings of $7,000 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 $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reduces
production costs by $8,000 per year.
8.03 %
398,400
19.92
318,400 15.92
4.00
1.60
2.40
5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.
6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 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.
3.06 x
24.62
80,000
32,000
48,000 $
Required 1 Required 2 Required 3
%
Unit
$ 49.80
29.88
Complete this question by entering your answers in the tabs below.
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. (Round your intermediate calculations and final answers to 2 decimal places.)
Answer is complete but not entirely correct.
Effect
Decrease
Incr
Increase
Required 4 Required 5 Required 6
< Required 6
Required 7
Required 7 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F509e5958-8244-4a2f-8465-f7fef11461d8%2F80ec63a2-ce03-440c-91f8-45b6f00edc24%2Fhxv9rjm_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]
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
996,000
597,600
The company had average operating assets of $496,000 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.
Margin
Turnover
ROI
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 $96,000. (The released funds are used to
pay off short-term creditors.)
3. The company achieves a cost savings of $7,000 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 $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reduces
production costs by $8,000 per year.
8.03 %
398,400
19.92
318,400 15.92
4.00
1.60
2.40
5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.
6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 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.
3.06 x
24.62
80,000
32,000
48,000 $
Required 1 Required 2 Required 3
%
Unit
$ 49.80
29.88
Complete this question by entering your answers in the tabs below.
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. (Round your intermediate calculations and final answers to 2 decimal places.)
Answer is complete but not entirely correct.
Effect
Decrease
Incr
Increase
Required 4 Required 5 Required 6
< Required 6
Required 7
Required 7 >
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