Correct! The Tracey Company had the following information for its most recent pe
ID: 2438183 • Letter: C
Question
Correct!
The Tracey Company had 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 return on investment (ROI) for the period using the ROI formula stated in terms of margin 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 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. Each case is separate so you should return to the original data for your computations. Note: Formulas must be used for Margin, Turnover, and ROI. The other cells should be formulas but I will allow typed in numbers. (a) The company achieves a cost savings of $10,000 per period by using less costly materials. 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, the company is able to reduce the average level of inventory by $100,000. (The released funds are 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 will variable 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 bonds and uses the proceeds to purchase $125,000 in machinery and equipment at the beginning of the period. Sales remain unchanged. The new, more efficient equipment reduces production 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 for possible 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 carried on 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! DecreaseCorrect!
I've answered some, I need help with the ones I was not able to answer (The ones that say "Try Again"). Please Show me the work don't just give me the answerExplanation / Answer
Solution
(a) The company achieves a cost savings of $10,000 per period by using less costly materials.
A
Net operating income
$90,000
(80000+10000)
Increased
Type Increase, Decrease, or
B
Sales
$1,000,000
Unchanged
Unchanged in the space below
C
Average operating assets
$500,000
Unchanged
D=A/B
Margin
9%
Increased
E=B/C
Turnover
2
Unchanged
F=A/C
ROI
18%
Increased
(b) Using Lean Production, the company is able to reduce the average level of inventory by
$100,000. (The released funds are used to pay off bank loans.)
A
Net operating income
$80,000
Unchanged
Type Increase, Decrease, or
B
Sales
$1,000,000
Unchanged
Unchanged in the space below
C
Average operating assets
$400,000
(500000-100000)
Decreased
D=A/B
Margin
8%
Unchanged
E=B/C
Turnover
2.5
Increased
F=A/C
ROI
20%
Increased
(c) Sales are increased by $250,000; operating assets remained unchanged. (Remember,
if sales change, so will variable expenses.)
Sales
$1,250,000
(1000000+250000)
Increased
Variable expenses
$750,000
600000*(1250000/1000000)
Increased
Contribution margin
$500,000
(1250000-750000)
Increased
Fixed expenses
$320,000
Unchanged
Net operating income
$180,000
(500000-320000)
A
Net operating income
$180,000
Increased
Type Increase, Decrease, or
B
Sales
$1,250,000
Increased
Unchanged in the space below
C
Average operating assets
$500,000
Unchanged
D=A/B
Margin
14.4%
Increased
E=B/C
Turnover
2.5
Increased
F=A/C
ROI
36%
Increased
d) The company issues bonds and uses the proceeds to purchase $125,000 in machinery
and equipment at the beginning of the period. Sales remain unchanged. The new, more
efficient equipment reduces production costs by $5,000 per period.
A
Net operating income
$85,000
(80000+5000)
Increased
Type Increase, Decrease, or
B
Sales
$1,000,000
Unchanged
Unchanged in the space below
C
Average operating assets
$625,000
(500000+125000)
Increased
D=A/B
Margin
8.5%
Increased
E=B/C
Turnover
1.6
Decreased
F=A/C
ROI
13.60%
Decreased
(a) The company achieves a cost savings of $10,000 per period by using less costly materials.
A
Net operating income
$90,000
(80000+10000)
Increased
Type Increase, Decrease, or
B
Sales
$1,000,000
Unchanged
Unchanged in the space below
C
Average operating assets
$500,000
Unchanged
D=A/B
Margin
9%
Increased
E=B/C
Turnover
2
Unchanged
F=A/C
ROI
18%
Increased
(b) Using Lean Production, the company is able to reduce the average level of inventory by
$100,000. (The released funds are used to pay off bank loans.)
A
Net operating income
$80,000
Unchanged
Type Increase, Decrease, or
B
Sales
$1,000,000
Unchanged
Unchanged in the space below
C
Average operating assets
$400,000
(500000-100000)
Decreased
D=A/B
Margin
8%
Unchanged
E=B/C
Turnover
2.5
Increased
F=A/C
ROI
20%
Increased
(c) Sales are increased by $250,000; operating assets remained unchanged. (Remember,
if sales change, so will variable expenses.)
Sales
$1,250,000
(1000000+250000)
Increased
Variable expenses
$750,000
600000*(1250000/1000000)
Increased
Contribution margin
$500,000
(1250000-750000)
Increased
Fixed expenses
$320,000
Unchanged
Net operating income
$180,000
(500000-320000)
A
Net operating income
$180,000
Increased
Type Increase, Decrease, or
B
Sales
$1,250,000
Increased
Unchanged in the space below
C
Average operating assets
$500,000
Unchanged
D=A/B
Margin
14.4%
Increased
E=B/C
Turnover
2.5
Increased
F=A/C
ROI
36%
Increased
d) The company issues bonds and uses the proceeds to purchase $125,000 in machinery
and equipment at the beginning of the period. Sales remain unchanged. The new, more
efficient equipment reduces production costs by $5,000 per period.
A
Net operating income
$85,000
(80000+5000)
Increased
Type Increase, Decrease, or
B
Sales
$1,000,000
Unchanged
Unchanged in the space below
C
Average operating assets
$625,000
(500000+125000)
Increased
D=A/B
Margin
8.5%
Increased
E=B/C
Turnover
1.6
Decreased
F=A/C
ROI
13.60%
Decreased