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Last year's contribution format income statement for Huerra Company is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income Total $ 1,002,000 601,200 400,800 324,800 Unit $ 50.10 30.06 20.04 16.24 76,000 3.80 1.52 30,400 $ 45,600 $ 2.28 The company had average operating assets of $500,000 during the year. Required: 1. Compute last year's margin, turnover, and return on investment (ROI). For each of the following questions, indicate whether last year's margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI. Consider each question separately. 2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. 3. The company achieves a cost savings of $5,000 per year by using less costly materials. 4. The company purchases machinery and equipment that increase average operating assets by $127,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $3,000 per year. 5. As a result of a more intense effort by sales people, sales are increased by 20%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $19,000. 7. At the beginning of the year, the company uses $178,000 of cash (received on accounts receivable) to repurchase some of its common stock.

Last year's contribution format income statement for Huerra Company is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income Total $ 1,002,000 601,200 400,800 324,800 Unit $ 50.10 30.06 20.04 16.24 76,000 3.80 1.52 30,400 $ 45,600 $ 2.28 The company had average operating assets of $500,000 during the year. Required: 1. Compute last year's margin, turnover, and return on investment (ROI). For each of the following questions, indicate whether last year's margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI. Consider each question separately. 2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. 3. The company achieves a cost savings of $5,000 per year by using less costly materials. 4. The company purchases machinery and equipment that increase average operating assets by $127,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $3,000 per year. 5. As a result of a more intense effort by sales people, sales are increased by 20%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $19,000. 7. At the beginning of the year, the company uses $178,000 of cash (received on accounts receivable) to repurchase some of its common stock.

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter11: Performance Evaluation And Decentralization
Section: Chapter Questions
Problem 27E: Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the...
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Last year's contribution format income statement for Huerra Company is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income Total $ 1,002,000 601, 200 Required 1 Required 2 The company had average operating assets of $500,000 during the year. Required: 1. Compute last year's margin, turnover, and return on investment (ROI). For each of the following questions, indicate whether last year's margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI. Consider each question separately. 2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. 3. The company achieves a cost savings of $5,000 per year by using less costly materials. 4. The company purchases machinery and equipment that increase average operating assets by $127,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $3,000 per year. 5. As a result of a more intense effort by sales people, sales are increased by 20%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $19,000. 7. At the beginning of the year, the company uses $178,000 of cash (received on accounts receivable) to repurchase some of its common stock. Margin Turnover ROI 400,800 324,800 76,000 30,400 $ 45,600 Complete this question by entering your answers in the tabs below. Required 3 Unit $ 50.10 30.06 20.04 16.24 % 3.80 1.52 $ 2.28 % Compute last year's margin, turnover, and return on investment (ROI). Note: Round your intermediate calculations and final answer to 2 decimal places. Required 4 Required 5 Required 6 < Required 1 Required 2 > Required 7
Transcribed Image Text:Last year's contribution format income statement for Huerra Company is given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income Total $ 1,002,000 601, 200 Required 1 Required 2 The company had average operating assets of $500,000 during the year. Required: 1. Compute last year's margin, turnover, and return on investment (ROI). For each of the following questions, indicate whether last year's margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI. Consider each question separately. 2. Using Lean Production, the company is able to reduce the average level of inventory by $96,000. 3. The company achieves a cost savings of $5,000 per year by using less costly materials. 4. The company purchases machinery and equipment that increase average operating assets by $127,000. Sales remain unchanged. The new, more efficient equipment reduces production costs by $3,000 per year. 5. As a result of a more intense effort by sales people, sales are increased by 20%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory is scrapped, thereby lowering net operating income by $19,000. 7. At the beginning of the year, the company uses $178,000 of cash (received on accounts receivable) to repurchase some of its common stock. Margin Turnover ROI 400,800 324,800 76,000 30,400 $ 45,600 Complete this question by entering your answers in the tabs below. Required 3 Unit $ 50.10 30.06 20.04 16.24 % 3.80 1.52 $ 2.28 % Compute last year's margin, turnover, and return on investment (ROI). Note: Round your intermediate calculations and final answer to 2 decimal places. Required 4 Required 5 Required 6 < Required 1 Required 2 > Required 7
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