The Gustavo Industries in São Paulo, Brazil, reported the following results for 2020 (currency in Brazilian real, R$): Sales R$ 400,000,000 Variable costs 320,000,000 Controllable fixed costs 40,800,000 Average operating assets 280,000,000 Gustavo’s Management is considering the following independent courses of action in 2021 in order to maximize the return on investment for this division: Option1: Reduce average operating assets by R$ 80,000,000 with no change in the controllable margin. Option2: Increase sales by R$ 80,000,000 with no change in the contribution margin percentage. Compute the controllable margin and the return on investment for 2020. Compute the controllable margin and the expected return on investment for each proposed option.
The Gustavo Industries in São Paulo, Brazil, reported the following results for 2020 (currency in Brazilian real, R$): Sales R$ 400,000,000 Variable costs 320,000,000 Controllable fixed costs 40,800,000 Average operating assets 280,000,000 Gustavo’s Management is considering the following independent courses of action in 2021 in order to maximize the return on investment for this division: Option1: Reduce average operating assets by R$ 80,000,000 with no change in the controllable margin. Option2: Increase sales by R$ 80,000,000 with no change in the contribution margin percentage. Compute the controllable margin and the return on investment for 2020. Compute the controllable margin and the expected return on investment for each proposed option.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
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The Gustavo Industries in São Paulo, Brazil, reported the following results for 2020 (currency in Brazilian real, R$):
Sales R$ 400,000,000
Variable costs 320,000,000
Controllable fixed costs 40,800,000
Average operating assets 280,000,000
Gustavo’s Management is considering the following independent courses of action in 2021 in order to maximize the return on investment for this division:
- Option1: Reduce average operating assets by R$ 80,000,000 with no change in the controllable margin.
- Option2: Increase sales by R$ 80,000,000 with no change in the contribution margin percentage.
- Compute the controllable margin and the return on investment for 2020.
- Compute the controllable margin and the expected return on investment for each proposed option.
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