1.
ROI =( Net Operating Income / Average Operating Assets) x 100
= ($1,520,000 / 8,000,000) x 100 = 19%
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2. (a)
ROI = ( Net Operating Income / Average Operating Assets) x 100
Net operating Income when reducing the average level of inventory by $500,000 = $1,520,000 - $500,000 = $1,020,000
ROI = ($1,020,000 / 8,000,000) x 100 = 12.75% (ROI decreased)
(b)
ROI = ( Net Operating Income / Average Operating Assets) x 100
Net operating Income when achieving $15 per unit by cheaper materials = 50000 units x $15 = $750,000
(No.of units = 15,200,000 / 304 = 50,000 units)
ROI = ($750,000 / / 8,000,000) x 100 = 9.38%(ROI decreased)
(c)
Sales | $15,200,000 |
Less: Variable Expenses | $12,160,000 |
-------------------- | |
Contrtibution margin | $3,040,000 |
Less: Fixed expense (1,520,000 - 25,000) | $1,495,000 |
-------------------- | |
Net Operating Income | $1,545,000 |
Less: Income taxes @ 30% (1,545,000 x 30%) | $463,500 |
--------------------- | |
Net Income | $1,081,500 |
============== |
ROI = ( Net Operating Income / Average Operating Assets) x 100
Here Average Operating Assets = $8,000,000 + $500,000 = $8,500,000
ROI =( $1,545,000 / $8,500,000 ) x 100 = 18.18%
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