Question

Current Attempt in Progress The South Division of Wiig Company reported the following data for the current year. Sales Variable costs $3,050,000 2.013,000 610,000 5,000,000 Controllable fixed costs Average operating assets Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action 1. Increase sales by $300,000 with no change in the contribution margin percentage. 2. Reduce variable costs by $150,000. 3. Reduce average operating assets by 4%. (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%) Return on Investment (b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 2 decimal places, eg. 1.57%) Return on investment Action 1 Action 2 Action 3

Answer 1

a) Computation of return on investment for the current year ROL = Net Income toonx100 Average operating assess – Sales C) variable costs contribution es fixed cost Net Income (30,50.000 20 13000) $ 10, 37000 10,000) - -> $42-4000 ROP = $4270o0 x 100 $50,00.000 ROR = 8:54) b) ROD - Action-I : sales Increabe by $300000 Total net ancouse - $ 727000 ROP = $727000 x 100 $ 50,00.000 ROL = 14:54 |

Action - 2 Reduce variable cost by $ 150 000 Sales $ 30,50,000 variable costat 18,63000) - Contribution - & 11, 87000 G fixed costs – (61000) I Net ancome $577000 ROI = $577000 x 600 $50,00,000 Rol = 11.54 % Action-3 - Reduce average operating assets by 42 Average operating assets = $ 50,09000X961" = $48.00.000 ROL = $427000 x 100 $4800000 ROI = 8.907

L. Return on investment 14'54.100001 Action - 1 Action - 2 11.541 (Action - 3 8901 po