Question

- Your answer is partially correct. The South Division of Wiig Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets $2,955,000 1,973,940 602,200 5,041,000 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 $319,000 with no change in the contribution margin percentage. 2. Reduce variable costs by $152,900. 3. Reduce average operating assets by 3%. (a) Compute the return on investment (ROI) for the current year. (Round ROI to 1 decimal place, e.g. 1.5.) Return on Investment 7.6 % (b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 1 decimal place, e.g. 1.5.) Return on investment Action 1 Action 2 Action 3

Answer 1

a	Income Statement
		South Division
	Sales	$29,55,000
Less:	Variable costs	$19,73,940
	Contribution margin	$9,81,060
Less:	Fixed costs	$6,02,200
	Income from operations	$3,78,860
	Average operating Assets	$50,41,000
	ROI =Net Income / Average Invested Assets	7.5%
b	Income Statement
Action 1		Solano Company
	Sales	$32,74,000
	Variable costs	$21,87,032
	Contribution margin	$10,86,968
	Fixed costs	$6,02,200
	Income from operations	$4,84,768
	Average operating Assets	$50,41,000
	ROI =Net Income / Average Invested Assets	9.6%
Action 2	Sales	$29,55,000
	Variable costs	$18,21,040
	Contribution margin	$11,33,960
	Fixed costs	$6,02,200
	Income from operations	$5,31,760
	Average operating Assets	$50,41,000
	ROI =Net Income / Average Invested Assets	10.5%
Action 3	Sales	$29,55,000
	Variable costs	$19,73,940
	Contribution margin	$9,81,060
	Fixed costs	$6,02,200
	Income from operations	$3,78,860
	Average operating Assets	$48,89,770
	ROI =Net Income / Average Invested Assets	7.7%