The White Division of Mesin Company reported the following data for the current year.
Sales $3,000,000
Variable costs 2,400,000 Controllable fi xed costs 400,000 Average operating assets 5,000,000
Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the White 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 $100,000.
3. Reduce average operating assets by 4%.
Instructions
(a) Compute the return on investment (ROI) for the current year.
(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.
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Answer:
A) 4%
Explanation:
Robi = sales -vc-fc/ operating assets
= 200000/5000000= 4%
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