Exericse 24-17 The South Division of Wilig Company reported the following data f

Question

Exericse 24-17 The South Division of Wilig Company reported the following data for the current year. SaleJ Sales Variable costs Controllable fixed costs Average operating assets $3,038,000 2,017,232 598,500 Conrib, Potin i, 020, Te 4,952,100 Cont 598 500 Cort rol . margin ?22,268 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. 1. Increase sales by $320,000 with no change in the contribution margin percentage. 2. Reduce variable costs by $154,600. 3. Reduce average operating assets by 4%. (a) Compute the return on investment (ROI) for the current year. (Round ROI to 1 decimal place, e.g. 1.5.) Controli hery 368 Aug. Dpe. Asset,-4M01100 Return on Investment [ B-57e ]% (b) 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.) Return on investment Action 1 Action 2 Action 3 Question Attempts: Unlimite Copyright2000-2018 by John Wiley&Sons;, Inc. or related companies. All rights reserved 31358,000743 -2,OIn,332 -598,500 41952,looU

Explanation / Answer

Return On Investment = Operating Income/ Average Operating Assets Current Year Operating income % Sales          30,38,000 Variable costs         -20,17,232 66.4% Contribution Margin          10,20,768 33.6% Controllable fixed costs           -5,98,500 Operating income             4,22,268 Average operating Assets          49,52,100 Return On Investment 8.5% Action 1 Sales (3,038,000+320,000)          33,58,000 Contribution Margin (3358000X33.6%)          11,28,288 Controllable fixed costs           -5,98,500 Operating income             5,29,788 Average operating Assets          49,52,100 Return On Investment (529,788/4,952,100) 10.7%

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