# The income statement for Huerra Company for last year is provided below: Sales Less: Variable expenses...

###### Question:

The income statement for Huerra Company for last year is provided below: Sales Less: Variable expenses Total $43,200,000 25,920,000 Unit$432.00 259.20 Contribution margin Less: Fixed expense 17,280,000 8,640,000 172.80 86.40 Net operating income Less: Income taxes @ 30% 8,640,000 2,592,000 86.40 25.92 Net income $6,048,000$ 60.48 The company had average operating assets of $18,000,000 during the year. Required: 1. 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 (i.e., 0.1234 should be entered as 12.34).) ROI 2. Consider each of the following questions separately and then compute the new ROI figure. 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$300,000. (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 (i.e., 0.1234 should be entered as 12.34).) ROI % b. The company achieves a savings of $22 per unit by using cheaper materials. (Round intermediate and final answer to 2 decimal places.) ROI C. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by$200,000. Interest on the bonds is $20,000 per year. Sales remain unchanged. The new more efficient equipment reduces fixed production costs by$10,000 per year. (Round intermediate and final answer to 2 decimal places.) ROI % d. As a result of a more intense effort by the sales staff, sales are increased by 20%; operating assets remain unchanged. (Round intermediate and final answer to 2 decimal places.)
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