The contribution format income statement for Huerra Company for last year is giv
ID: 2581272 • Letter: T
Question
The contribution format income statement for Huerra Company for last year is given below: Total Sales Variable expenses Unit $1,008,000 $50.40 604,800 30.24 Contribution margin Fixed expenses 403,200 20.16 321,200 16.06 Net operating income Income taxes @ 40% 82,000 32,800 4.10 1.64 Net income $ 49,200 2.46 The company had average operating assets of $510,000 during the year Required 1. Compute the company's return on investment (ROI) for the period using the ROl formula stated in terms of margin and turnover. (Round your Turnover answer to 2 decimal places. Round your Margin and ROl percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) Margin Turnover ROI For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the data used to compute the original RO in (1) above 2. Using Lean Production, the company is able to reduce the average level of inventory by $97,000. (The released funds are used to pay off short-term creditors.) (Round your Turnover answer to 2 decimal places. Round your Margin and ROl percentage answers to 2 decimal placesi.e., 0.1234 should be entered as 12.34).) Effect Margin Turnover ROIExplanation / Answer
Answer:
the formaulla are as under
Margin
=Net Operating income / Sales
Turnover
=Sales/ average operating assets
Return on investment
=Margin x turnover
Now we calculate Margin, Turnover and return on investment as under
1)
Net operating income
82000
Sales
1008000
Average operating assets
510,000
Margin
=Net Operating income / Sales
8.13%
Turnover
=Sales/ average operating assets
1.976
Return on investment
=Margin x turnover
16.078%
______________________________________________
2)
Change in the Inventory by $97,000 then Margin, Turnover and return on investment as under
Net operating income
82000
Sales
1008000
Average operating assets
(510,000-97,000)
413,000
Margin
=Net Operating income / Sales
8.13%
Turnover
=Sales/ average operating assets
2.441
Return on investment
=Margin x turnover
19.86%
____________________________________________________
3)
Cost savings by $6000 then Margin, Turnover and return on investment as under
Net operating income
=82000+6000
88000
Sales
1008000
Average operating assets
510,000
Margin
=Net Operating income / Sales
8.73%
Turnover
=Sales/ average operating assets
1.976
Return on investment
=Margin x turnover
17.26%
_______________________________________________
4)
Company issue Bond for machinery and equipment
Net operating income
=82000+7000
89000
Sales
1008000
Average operating assets
(510,000+121000)
631,000
Margin
=Net Operating income / Sales
8.83%
Turnover
=Sales/ average operating assets
1.597
Return on investment
=Margin x turnover
14.11%
Net operating income
82000
Sales
1008000
Average operating assets
510,000
Margin
=Net Operating income / Sales
8.13%
Turnover
=Sales/ average operating assets
1.976
Return on investment
=Margin x turnover
16.078%
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