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8/2/2019
Chapter 12
ROI
9% Increase
Chapter 12
5
The Income statement for Huera Company for last year Is provided below.
Total
Sales
$44,400,000
Unit
5444.00
C. The company Issues bonds and uses the proceeds to purchase machinery and equipment, thus
Less: Variable expenses
35,520,000
355.20
Increasing the average assets by $400,000. Interest on the bonds Is $40,000 per year. Sales remain
unchanged. The new more efficient equipment reduces fixed production costs by $20,000 per year
Contribution margin
3.880,000
4.440,000
8.80
(Round Intermediate and final answer to 2 decimal places]
Less: Fixed expense
14.40
ROI
35.98 % decrease
Net operating Income
4.440,000
44.40
Less: Income taxes @ 30%%
1.332,000
13.32
Net Income
$ 3,108,000
$ 31.08
The company had average operating assets of $12,000,000 during the year.
Required:
. Compute the company's ROI for the period using the ROI formula stated In terms of margin and
turnover. (Round Intermediate calculation to 2 decimal places. Enter your percentage answer
rounded to 2 decimal places (Le., 0.1234 should be entered as 12.34).)
ROI
37.00 9%
d. As a result of a more Intense effort by the sales staff, sales are Increased by 15%; operating assets
remain unchanged. (Round Intermediate and final answer to 2 decimal places.)
ROI
1%% Increase
2. Consider each of the following questions separately and then compute the new ROI Ogure. Indicate
whether the ROI will Increase, decrease, or remain unchanged as a result of the events described.
a. By using JIT, the company Is able to reduce the average level of Inventory by $400,000. (The released
funds are used to pay off short-term creditors.) (Round Intermediate calculation to 2 decimal places.
Enter your percentage answer rounded to 2 decimal places (Le., 0.1234 should be entered as
12.34]-}
ROI
38.30 % Increase
9. Obsolete Items of Inventory carried on the records at a cost of $110,000 are scrapped and sold for 25%
of the book value. (Use full amount of scrap whille calculating average operating assets. Round
Intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal
places (Le., 0.1254 should be entered as 12.34).)
ROI
9% decrease
b. The company achieves a savings of $22 per unit by using cheaper materials. (Round Intermediate and
final answer to 2 decimal places.]

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