The Tracey Company had the following information for its most recent period: Tot

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The Tracey Company had the following information for its most recent period: Total Unit % Sales $1,000,000 $50 100% Variable expenses 600,000 30 60% Contribution margin 400,000 $20 40% Fixed expenses 320,000 Net operating income $80,000 Average operating assets $500,000 Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. Net operating income $80,000 Correct! Sales $1,000,000 Correct! Average operating assets $500,000 Correct! Margin 8.00% Correct! Turnover 2.0 Correct! ROI 16.00% Correct! Required: 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. Each case is separate so you should return to the original data for your computations. Note: Formulas must be used for Margin, Turnover, and ROI. The other cells should be formulas but I will allow typed in numbers. (a) The company achieves a cost savings of $10,000 per period by using less costly materials. Net operating income Try Again! Type Increase, Decrease, or Sales Try Again! Unchanged in the space below Average operating assets Try Again! Margin Try Again! Try Again! Turnover Try Again! Try Again! ROI Try Again! Try Again! (b) Using Lean Production, the company is able to reduce the average level of inventory by $100,000. (The released funds are used to pay off bank loans.) Net operating income Try Again! Type Increase, Decrease, or Sales Try Again! Unchanged in the space below Average operating assets Try Again! Margin Try Again! Try Again! Turnover Try Again! Try Again! ROI Try Again! Try Again! (c) Sales are increased by $250,000; operating assets remained unchanged. (Remember, if sales change, so will variable expenses.) Sales Try Again! Variable expenses Try Again! Contribution margin Try Again! Fixed expenses Try Again! Net operating income Try Again! Net operating income Try Again! Type Increase, Decrease, or Sales Try Again! Unchanged in the space below Average operating assets Try Again! Margin Try Again! Try Again! Turnover Try Again! Try Again! ROI Try Again! Try Again! (d) The company issues bonds and uses the proceeds to purchase $125,000 in machinery and equipment at the beginning of the period. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per period. Net operating income Try Again! Type Increase, Decrease, or Sales Try Again! Unchanged in the space below Average operating assets Try Again! Margin Try Again! Try Again! Turnover Try Again! Try Again! ROI Try Again! Try Again! (e) The company invests $180,000 of cash (received from accounts receivable) in a plot of land that is to be held for possible future use as a plant site. Net operating income Try Again! Type Increase, Decrease, or Sales Try Again! Unchanged in the space below Average operating assets Try Again! Margin Try Again! Try Again! Turnover Try Again! Try Again! ROI Try Again! Try Again! (f) Obsolete inventory carried on the books at a cost of $20,000 is scrapped and written off as a loss. Net operating income Try Again! Type Increase, Decrease, or Sales Try Again! Unchanged in the space below Average operating assets Try Again! Margin Try Again! Try Again! Turnover 2.083! Try Again! ROI Try Again! Try Again! Note: Cell B101 does not come out even so I wasn't able to do the Correct! or Try Again! in Cell D101. You should still use a formula in Cell B101 and your answer should be 2.083. A1 x- Tracey Excel C D E 4 The Tracey Company had the tollowing information for its most recent period 6 Total Unit $50 30 $1,000,000 Sales Variable expenses Contribution margirn Fixed expenses Net operating income 100% 60% 40% 8 600,000 400,000520 320,000 $80,000 Average operating assets $500,000 Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover 17 Net operating income Sales Average operating assets Margin Turnover ROI 80,000 Correct! $1,000,000 Correct! 500,000 Correct! 8.00% Correct! 2.0 Correct! 16.00% Correct! 20 24 25 26 27 Required 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 ROL figure, Each case is separate so vou should return to the original Sheet1

Explanation / Answer

(a) The company achieves a cost savings of $10,000 per period by using less costly materials. A Net operating income $90,000 (80000+10000) Increased Type Increase, Decrease, or B Sales $1,000,000 Unchanged Unchanged in the space below C Average operating assets $500,000 Unchanged D=A/B Margin 9% Increased E=B/C Turnover 2 Unchanged F=A/C ROI 18% Increased (b) Using Lean Production, the company is able to reduce the average level of inventory by $100,000. (The released funds are used to pay off bank loans.) A Net operating income $80,000 Unchanged Type Increase, Decrease, or B Sales $1,000,000 Unchanged Unchanged in the space below C Average operating assets $400,000 (500000-100000) Decreased D=A/B Margin 8% Unchanged E=B/C Turnover 2.5 Increased F=A/C ROI 20% Increased (c) Sales are increased by $250,000; operating assets remained unchanged. (Remember, if sales change, so will variable expenses.) Sales $1,250,000 (1000000+250000) Increased Variable expenses $750,000 600000*(1250000/1000000) Increased Contribution margin $500,000 (1250000-750000) Increased Fixed expenses $320,000 Unchanged Net operating income $180,000 (500000-320000) A Net operating income $180,000 Increased Type Increase, Decrease, or B Sales $1,250,000 Increased Unchanged in the space below C Average operating assets $500,000 Unchanged D=A/B Margin 14.4% Increased E=B/C Turnover 2.5 Increased F=A/C ROI 36% Increased d) The company issues bonds and uses the proceeds to purchase $125,000 in machinery and equipment at the beginning of the period. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per period. A Net operating income $85,000 (80000+5000) Increased Type Increase, Decrease, or B Sales $1,000,000 Unchanged Unchanged in the space below C Average operating assets $625,000 (500000+125000) Increased D=A/B Margin 8.5% Increased E=B/C Turnover 1.6 Decreased F=A/C ROI 13.60% Decreased

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