The contribution format income
statement for Westex, Inc., for its most recent period is given
below:
    Total   Unit
  Sales $ 1,006,000 $ 50.30
   
  Variable
expenses
603,600 30.18
   
  Contribution
margin
402,400 20.12
   
  Fixed expenses 324,400 16.22
   
  Net operating
income
78,000 3.90
   
  Income taxes @
40%
31,200 1.56
   
  Net income $ 46,800 $ 2.34
   
The company had average
operating assets of $498,000 during the period.
Required:
1.

Compute the company’s return on investment (ROI) for the period
using the ROI formula stated in terms of margin and turnover.
(Round your intermediate calculations and final answers to
2 decimal places.)

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Question: The contribution format income statement for Westex, Inc., for its most recent period is given be…
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  ROI %

For each of the following questions, indicate whether the margin
and turnover will increase, decrease, or remain unchanged as a
result of the events described, and then compute the new ROI
figure. Consider each question separately, starting in each case
from the original ROI computed in (1) above.

2.

The company achieves a cost savings of $8,000 per period by
using less costly materials. (Round your intermediate
calculations and final answers to 2 decimal places.)

Effect
  Margin % (Click to
select)UnchangedDecreaseIncrease  
  Turnover        (Click to
select)IncreaseUnchangedDecrease  
  ROI % (Click to
select)UnchangedDecreaseIncrease  
3.

Using Lean Production, the company is able to reduce the average
level of inventory by $94,000. (The released funds are used to pay
off bank loans.) (Round your intermediate calculations and
final answers to 2 decimal places.)

Effect
  Margin % (Click to
select)IncreaseDecreaseUnchanged  
  Turnover        (Click to
select)DecreaseIncreaseUnchanged  
  ROI % (Click to
select)DecreaseIncreaseUnchanged  
4.

Sales are increased by $201,200; operating assets remain
unchanged. (Round your intermediate calculations and final
answers to 2 decimal places.)

Effect
  Margin % (Click to
select)IncreaseUnchangedDecrease  
  Turnover        (Click to
select)IncreaseUnchangedDecrease  
  ROI % (Click to
select)DecreaseUnchangedIncrease  
5.

The company issues bonds and uses the proceeds to purchase
$124,000 in machinery and equipment at the beginning of the period.
Interest on the bonds is $20,000 per period. Sales remain
unchanged. The new, more efficient equipment reduces production
costs by $8,000 per period. (Round your intermediate
calculations and final answers to 2 decimal places.)

Effect
  Margin % (Click to
select)UnchangedDecreaseIncrease  
  Turnover        (Click to
select)IncreaseUnchangedDecrease  
  ROI % (Click to
select)UnchangedIncreaseDecrease  
6.

The company invests $181,000 of cash (received on accounts
receivable) in a plot of land that is to be held for possible
future use as a plant site. (Round your intermediate
calculations and final answers to 2 decimal places.)

Effect
  Margin % (Click to
select)UnchangedDecreaseIncrease  
  Turnover        (Click to
select)DecreaseIncreaseUnchanged  
  ROI % (Click to
select)UnchangedIncreaseDecrease  
7.

Obsolete inventory carried on the books at a cost of $18,000 is
scrapped and written off as a loss. (Round your
intermediate calculations and final answers to 2 decimal
places.)

Effect
  Margin % (Click to
select)DecreaseUnchangedIncrease  
  Turnover        (Click to
select)DecreaseIncreaseUnchanged  
  ROI % (Click to
select)IncreaseDecreaseUnchanged  

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