Question

The Tracey Companyhad the following information for its most recent period:
	Total		Unit		%
Sales	$1,000,000		$50		100%
Variable expenses	600,000		30		60%
Contribution margin	400,000		$20		40%
Fixed expenses	320,000
Net operating income	$80,000
Average operating assets	$500,000
Compute the company's returnon investment (ROI) for the period using the ROI
formula stated in terms ofmargin and turnover.
Net operating income	$80,000		Correct!
Sales	$1,000,000		Correct!
Average operating assets	$500,000		Correct!
Margin	8.00%		Correct!
Turnover	2.0		Correct!
ROI	16.00%		Correct!
Required:
For each of the followingquestions, indicate whether the margin and turnover will
increase, decrease, or remainunchanged as a result of the events described, and then
compute the new ROI figure.Each case is separate so you should return to the original
data for yourcomputations.
Note: Formulas must be usedfor Margin, Turnover, and ROI. The other cells should be
formulas but I will allowtyped in numbers.
(a) The company achieves acost savings of $10,000 per period by using less costlymaterials.
Net operating income	$90,000		Correct!			Type Increase, Decrease, or
Sales	$1,000,000		Correct!			Unchanged in the space below
Average operating assets	$500,000		Correct!
Margin	9.00%		Correct!			Increase	Correct!
Turnover	2.0		Correct!			Unchanged	Correct!
ROI	18.00%		Correct!			Increase	Correct!
(b) Using Lean Production, thecompany is able to reduce the average level of inventory by
$100,000. (The released fundsare used to pay off bank loans.)
Net operating income	$80,000		Correct!			Type Increase, Decrease, or
Sales	$1,000,000		Correct!			Unchanged in the space below
Average operating assets	$400,000		Correct!
Margin	8.00%		Correct!			Unchanged	Correct!
Turnover	2.500		Correct!			Increase	Correct!
ROI	20.00%		Correct!			Increase	Correct!
(c) Sales are increased by$250,000; operating assets remained unchanged. (Remember,
if sales change, so willvariable expenses.)
Sales	$1,250,000		Correct!
Variable expenses	750,000		Correct!
Contribution margin	500,000		Correct!
Fixed expenses	320,000		Correct!
Net operating income	$180,000		Correct!
Net operating income	$180,000		Correct!			Type Increase, Decrease, or
Sales	$1,250,000		Correct!			Unchanged in the space below
Average operating assets	$500,000		Correct!
Margin	14.40%		Correct!			Increase	Correct!
Turnover	2.500		Correct!			Increase	Correct!
ROI	36.00%		Correct!			Increase	Correct!
(d) The company issues bondsand uses the proceeds to purchase $125,000 in machinery
and equipment at the beginningof the period. Sales remain unchanged. The new, more
efficient equipment reducesproduction costs by $5,000 per period.
Net operating income	$180,000		Try Again!			Type Increase, Decrease, or
Sales	$1,200,000		Try Again!			Unchanged in the space below
Average operating assets	$495,000		Try Again!
Margin	?		Try Again!			Increase	Correct!
Turnover	?		Try Again!			Decrease	Correct!
ROI	?		Try Again!			Decrease	Correct!
(e) The company invests$180,000 of cash (received from accounts receivable) in a plot
of land that is to be held forpossible future use as a plant site.
Net operating income	$0		Try Again!			Type Increase, Decrease, or
Sales			Try Again!			Unchanged in the space below
Average operating assets			Try Again!
Margin	?		Try Again!			unchanged	Correct!
Turnover	?		Try Again!			Increase	Correct!
ROI	?		Try Again!			increase	Correct!
(f) Obsolete inventory carriedon the books at a cost of $20,000 is scrapped and written off
as a loss.
Net operating income			Try Again!			Type Increase, Decrease, or
Sales			Try Again!			Unchanged in the space below
Average operating assets			Try Again!
Margin	?		Try Again!			Decrease	Correct!
Turnover	?		2.083!			Increase	Correct!
ROI	?		Try Again!			Decrease	Correct!
I've answered some, I need help with theones I was not able to answer (The ones that say "Try Again").Please Show me the work don'tjust give me the answer