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The income statement for Huerra Company for last year is provided below: Total Unit $44,100,000 $4,410.00 26,460,000 2,646.00 17,640,000 1,764.00 8,820,000 8,820,000 882.00 882.00 2,646,000 264.60 $ 6,174,000 $ 617.40 Sales Less: Variable expenses Contribution margin Less: Fixed expanse Net operating income Less: Income taxes 30% Net incone The company had average operating assets of $21,000,000 during the year. Required: 1. Compute the company's ROI for the period using the ROI formula stated in terms of margin and turnover. (Round Intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI 2. Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will increase, decrease, or remain unchanged as a result of the events described. a. By using JIT, the company is able to reduce the average level of inventory by $400,000. (The released funds are used to pay off short-term creditors.) (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI b. The company achieves a savings of $221 per unit by using cheaper materials. (Round intermediate and final answer to 2 decimal places.) ROI c. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $500,000. Interest on the bonds is $50,000 per year. Sales remain unchanged. The new, more efficient equipment reduces fixed production costs by $25,000 per year. (Round intermediate and final answer to 2 decimal places.) ROI

The income statement for Huerra Company for last year is provided below: Total Unit $44,100,000 $4,410.00 26,460,000 2,646.00 17,640,000 1,764.00 8,820,000 8,820,000 882.00 882.00 2,646,000 264.60 $ 6,174,000 $ 617.40 Sales Less: Variable expenses Contribution margin Less: Fixed expanse Net operating income Less: Income taxes 30% Net incone The company had average operating assets of $21,000,000 during the year. Required: 1. Compute the company's ROI for the period using the ROI formula stated in terms of margin and turnover. (Round Intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI 2. Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will increase, decrease, or remain unchanged as a result of the events described. a. By using JIT, the company is able to reduce the average level of inventory by $400,000. (The released funds are used to pay off short-term creditors.) (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI b. The company achieves a savings of $221 per unit by using cheaper materials. (Round intermediate and final answer to 2 decimal places.) ROI c. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $500,000. Interest on the bonds is $50,000 per year. Sales remain unchanged. The new, more efficient equipment reduces fixed production costs by $25,000 per year. (Round intermediate and final answer to 2 decimal places.) ROI

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter11: Performance Evaluation And Decentralization
Section: Chapter Questions
Problem 27E: Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the...
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The income statement for Huerra Company for last year is provided below: Total Unit $44,100,000 $4,410.00 26,460,000 2,646.00 17,640,000 1,764.00 8,820,000 8,820,000 882.00 882.00 2,646,000 264.60 $ 6,174,000 $ 617.40 Sales Less: Variable expenses Contribution margin Leas: Fixed expense Net operating incore Less: Income taxes 30% Net incone The company had average operating assets of $21,000,000 during the year. Required: 1. Compute the company's ROI for the period using the ROI formula stated in terms of margin and turnover. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI 2. Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will increase, decrease, or remain unchanged as a result of the events described. नु a. By using JIT, the company is able to reduce the average level of inventory by $400,000. (The released funds are used to pay off short-term creditors.) (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI b. The company achieves a savings of $221 per unit by using cheaper materials. (Round intermediate and final answer to 2 decimal places.) ROI c. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $500,000. Interest on the bonds is $50,000 per year. Sales remain unchanged. The new, more efficient equipment reduces fixed production costs by $25,000 per year. (Round intermediate and final answer to 2 decimal places.) ROI d. As a result of a more intense effort by the sales staff, sales are increased by 25%; operating assets remain unchanged. (Round intermediate and final answer to 2 decimal places.) ROI
Transcribed Image Text:The income statement for Huerra Company for last year is provided below: Total Unit $44,100,000 $4,410.00 26,460,000 2,646.00 17,640,000 1,764.00 8,820,000 8,820,000 882.00 882.00 2,646,000 264.60 $ 6,174,000 $ 617.40 Sales Less: Variable expenses Contribution margin Leas: Fixed expense Net operating incore Less: Income taxes 30% Net incone The company had average operating assets of $21,000,000 during the year. Required: 1. Compute the company's ROI for the period using the ROI formula stated in terms of margin and turnover. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI 2. Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will increase, decrease, or remain unchanged as a result of the events described. नु a. By using JIT, the company is able to reduce the average level of inventory by $400,000. (The released funds are used to pay off short-term creditors.) (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI b. The company achieves a savings of $221 per unit by using cheaper materials. (Round intermediate and final answer to 2 decimal places.) ROI c. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $500,000. Interest on the bonds is $50,000 per year. Sales remain unchanged. The new, more efficient equipment reduces fixed production costs by $25,000 per year. (Round intermediate and final answer to 2 decimal places.) ROI d. As a result of a more intense effort by the sales staff, sales are increased by 25%; operating assets remain unchanged. (Round intermediate and final answer to 2 decimal places.) ROI
e. Obsolete items of inventory carried on the records at a cost of $80,000 are scrapped and sold for 20% of the book value. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI f. The company uses $300,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. The net effect of this transaction is a $300,000 change in average operating assets. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI g. The company pays a cash dividend to its shareholders, which results in a $500,000 change in average operating assets. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI
Transcribed Image Text:e. Obsolete items of inventory carried on the records at a cost of $80,000 are scrapped and sold for 20% of the book value. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI f. The company uses $300,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. The net effect of this transaction is a $300,000 change in average operating assets. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI g. The company pays a cash dividend to its shareholders, which results in a $500,000 change in average operating assets. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI
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