The South Division of Wiig Company reported the following data for the current y

Question

The South Division of Wiig Company reported the following data for the current year. 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. Compute the return on investment (ROI) for the current year. (Round ROI to 1 decimal place, e.g. 1.5.) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 1 decimal place, e.g. 1.5.)

Explanation / Answer

Solution:

Return on Invesment:

  Return on Invesment = 29,21,000 - 25,53,528 / 25,53,528 * 100

= 3,67,472 / 25,53,528 * 100

   = 14.39 % OR 14 %

  

(A) Action -1:

Sales Increased by 3,19,000:

   Sales = 29,21,000 + 3,19,000 = 32,40,000

Return on Invesment =  32,40,000 - 25,53,528 / 25,53,528 * 100

   = 7,04,472 / 25,53,528 * 100

   = 27.58% OR 26 %

(B). Action -2:

  Reduce Variable Costs by 1,58,200:

Return on Invesment = 29,21,000 - 23,95,328 / 23,95,328 * 100

   = 5,25,672 / 23,95,328 * 100

   = 21.94 % OR 22 %

(C). Action -3:   

Reduced Net Operating Assets 3% :

Return on Invesment =

Return on Invesment = Invesment Revenue - Investment Cost / Investment Cost

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