Question

The South Division of Wiig Company reported the following data for the current year. Sales $3,018,000 Variable costs 1,979,808 Controllable fixed costs 594,600 Average operating assets 5,087,200 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 $320,000 with no change in the contribution margin percentage. 2. Reduce variable costs by $151,500. 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.)

Answer 1

Answer:

(a) Compute the return on investment (ROI) for the current year.

Current ROI 8.72%

Explanation:

Sales 3,018,000

- Variable Cost 1,979,808

- fixed cost 594,600

Operating Income 443,592

Operating assets 5,087,200

Return on Investment

$\frac{operating \: Income}{Average \: Assets}$

ROI = 433,592/5,087,200 = 0.087197 = 8.72%