Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]The contribution format income statement for Huerra Company for last year is given below:Unit$ 49.8029.8819.9215.924.001.60$ 48,000 $ 2.40SalesVariable expenses.Contribution margin.Fixed expensesNet operating incomeIncome taxes @ 40%Net incomeRequired 1$The company had average operating assets of $496,000 during the year.Required:1. Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover.Total996,000597,600For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a resultof the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the dataused to compute the original ROI in (1) above.2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. (The released funds are used topay off short-term creditors.)3. The company achieves a cost savings of $7,000 per year by using less costly materials.4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assetsby $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reducesproduction costs by $8,000 per year.5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a loss.7. At the beginning of the year, the company uses $177,000 of cash (received on accounts receivable) to repurchase and retire some ofits common stock.Required 2MarginTurnoverROI398,400318,40080,00032,000Complete this question by entering your answers in the tabs below.8.03✔ %2.54 X20.40 X % Answer is complete but not entirely correct.Required 3 Required 4 Required 5 Required 6Using Lean Production, the company is able to reduce the average level of inventory by $96,000. (The released funds areused to pay off short-term creditors.) (Round your intermediate calculations and final answers to 2 decimal places.)EffectUnchanged ✔✔UnchangedIncrease Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]The contribution format income statement for Huerra Company for last year is given below:Unit$ 49.8029.8819.9215.924.001.60$ 48,000 $ 2.40SalesVariable expenses.Contribution margin.Fixed expensesNet operating incomeIncome taxes @ 40%Net income$Total996,000597,600398,400318,400The company had average operating assets of $496,000 during the year.Required:1. Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover.80,00032,000For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a resultof the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the dataused to compute the original ROI in (1) above.2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. (The released funds are used topay off short-term creditors.)3. The company achieves a cost savings of $7,000 per year by using less costly materials.4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assetsby $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reducesproduction costs by $8,000 per year.5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a loss.7. At the beginning of the year, the company uses $177,000 of cash (received on accounts receivable) to repurchase and retire some ofits common stock.MarginTurnoverROI9.54 X %2.0219.27X%Complete this question by entering your answers in the tabs below. Answer is complete but not entirely correct.Required 1 Required 2 Required 3The company achieves a cost savings of $7,000 per year by using less costly materials. (Round your intermediate calculationsand final answers to 2 decimal places.)EffectRequired 4IncreaseUnchangedIncreaseRequired 5 Required 6

Question

Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]The contribution format income statement for Huerra Company for last year is given below:Unit$ 49.8029.8819.9215.924.001.60$ 48,000 $ 2.40SalesVariable expenses.Contribution margin.Fixed expensesNet operating incomeIncome taxes @ 40%Net incomeRequired 1$The company had average operating assets of $496,000 during the year.Required:1. Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover.Total996,000597,600For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a resultof the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the dataused to compute the original ROI in (1) above.2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. (The released funds are used topay off short-term creditors.)3. The company achieves a cost savings of $7,000 per year by using less costly materials.4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assetsby $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reducesproduction costs by $8,000 per year.5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a loss.7. At the beginning of the year, the company uses $177,000 of cash (received on accounts receivable) to repurchase and retire some ofits common stock.Required 2MarginTurnoverROI398,400318,40080,00032,000Complete this question by entering your answers in the tabs below.8.03✔ %2.54 X20.40 X %> Answer is complete but not entirely correct.Required 3 Required 4 Required 5 Required 6Using Lean Production, the company is able to reduce the average level of inventory by $96,000. (The released funds areused to pay off short-term creditors.) (Round your intermediate calculations and final answers to 2 decimal places.)EffectUnchanged ✔✔UnchangedIncrease< Required 1Required 7Required 3 > Problem 10-20 Return on Investment (ROI) Analysis [LO10-1]The contribution format income statement for Huerra Company for last year is given below:Unit$ 49.8029.8819.9215.924.001.60$ 48,000 $ 2.40SalesVariable expenses.Contribution margin.Fixed expensesNet operating incomeIncome taxes @ 40%Net income$Total996,000597,600398,400318,400The company had average operating assets of $496,000 during the year.Required:1. Compute the company's return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover.80,00032,000For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a resultof the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the dataused to compute the original ROI in (1) above.2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. (The released funds are used topay off short-term creditors.)3. The company achieves a cost savings of $7,000 per year by using less costly materials.4. The company issues bonds and uses the proceeds to purchase machinery and equipment that increases average operating assetsby $120,000. Interest on the bonds is $16,000 per year. Sales remain unchanged. The new, more efficient equipment reducesproduction costs by $8,000 per year.5. As a result of a more intense effort by salespeople, sales are increased by 15%; operating assets remain unchanged.6. At the beginning of the year, obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a loss.7. At the beginning of the year, the company uses $177,000 of cash (received on accounts receivable) to repurchase and retire some ofits common stock.MarginTurnoverROI9.54 X %2.0219.27X%Complete this question by entering your answers in the tabs below.> Answer is complete but not entirely correct.Required 1 Required 2 Required 3The company achieves a cost savings of $7,000 per year by using less costly materials. (Round your intermediate calculationsand final answers to 2 decimal places.)EffectRequired 4IncreaseUnchangedIncreaseRequired 5 Required 6< Required 2Required 7Required 4 >

Accepted Answer

ROI stands for Return on Investment which is a metric of profitability and it is used for…