The Green Division of Frizell Company reported the following data for the curren

Question

The Green Division of Frizell Company reported the following data for the current year. Top management is unhappy with the investment centers return on investment (ROI). it asks the manager of the Green 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. Increase sales by $328,000 with no change in the contribution margin percentage. Reduce variable costs by $104,600. Reduce average operating assets by 4%. Compute t he return on investment (ROl) for the current year. Using the ROI formula, compute the ROI under each of the proposed courses of action.

Explanation / Answer

operating profit=3110400-1963500-601800=545100 ROI for the current year=operating income/operating assets 545100/5243600*100=10.4% ROI for three proposed actions (1) profit=3438400-2170318-601800=666282 666282/5243600*100=12.7% (2)operating profit=3110400-1858900-601800=649700 649700/5243600*100=12.4% (3)operating profit=3110400-1963500-601800=545100 operating assets=5243600-4%=5033856 ROI=545100/5033856*100=10.8%

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