The West Division of Nieto Company reported the following data for the current y

Question

The West Division of Nieto 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 West 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 dollar 320,820 with no change in the contribution margin percentage. Reduce variable costs by dollar 107,480. Reduce average operating assets by 4 percentage. Compute the return on investment (ROI) for the current year. (Round answer to 1 decimal places, e.g. 25.1percentage.) Return on Investment percentage Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round answers to 1 decimal place, e.g. 25.1percentage.) Return on investment Action 1 percentage Action 2 percentage Action 3 percentage

Explanation / Answer

Ans 1 Sales $3,039,800 Variable cost 1983900 Fixed Cost 591480 Gross Margin $464,420 A Return on Investment can be calculated in various ways In this case it is calculated as Gross margin/Avg. Operating assets 464420/5059500*100 9.2 % Sales $3,039,800 Variable cost 1983900 Contribution $1,055,900 Contribution Margin % C/S*100 34.7 Action I sales increased Sales $3,360,620 Less: Variable cost $2,193,280 Contribution Margin (34.7% of sales) $1,167,340 Less: Fixed contoabble cost 591480 Margin $575,860 ROI=575860/5059500*100 11.4 % Action II reduction in Variable cost Sales $3,039,800 Variable cost 1876420 Contribution $1,163,380 Less: Controllable fixed Cost 591480 Margin $571,900 ROI=571900/5059500*100 11.3 % Action III Operating assets reduce by 4% 4857120 ROI=464420/4857120*100 9.6 %

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