Your answer is partially correct. Try again. The South Division of wig Company r

Question

Your answer is partially correct. Try again. The South Division of wig Company reported the following data for the current year variable costs Controllable fixed oosts Average operating assets $3,065,000 1.998,380 609,800 4,902,800 y wm the nvestment center's return on ivestment (ROT, It asks the manager of the south Division to suomit pians to improve ROI im the next yess. The manager believes it s fresaitle to consudes the folbuiryg independent courses of action. 1. Increase sales by $321.000 with no change in the contribustion margin percentage. 2 Reduce variable costs by $152,000 Reduce average operating assets by 3%. (a) Comoute the return n rvestment (RO) ror the current year. (Round Ror to 1 dedmar place, eg, is) Return on Investment 9.327 (b) Using the ROI tormua, compute the R01 under each of the proposed courses of actian, (Rournd ROI to 1 deciamal place, e.g. t.5.) m on invest Action 1 Action 2 Action 3 12.42 Al Rights Reserved. A Division of Jsehn Wiex&.o.

Explanation / Answer

* Increase in sales results the increase in profit because the contribution is not changed so the precentage of contribution on sales is applied in calculaiton of increased profit. [Action 1]

Sales 3,065,000 Variable costs -1,998,380 Contribution 1,066,620 Controllable Fixed costs - 609,800 Profit 456,820 Average operating assets 4,902,800 Return on investment (ROI) = Profit / Average operating assets * 100 456820 / 4902800 * 100 9.3% Return on investment : Action 1 ROI = profit / average operating assets * 100 (456,820 + 111,708) / 4902800 * 100 11.6% Calculation of increased profit: Contribution percentage = (1066620/3065000 * 100) = 34.8% Increased controllable margin (profit) = 321000 * 34.8% 111708 Action 2 ROI = Profit / Average operating assets *100 608820 / 4902800 * 100 12.4% Sales 3,065,000 Variable costs (1,998,380 - 152,000) -1,846,380 Contribution 1,218,620 Controllable Fixed costs -609,800 Profit 608,820 Action 3 ROI = Profit / Average operating assets *100 456,820 / 4,755,716 * 100 9.6% Profit 456,820 Average operating assets 4,755,716 Calculation of average operating assets: Average operating assets - 3% [3% of 4,902,800 = 147084] 4,902,800 - 147084 4,755,716

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