The contribution format income statement for Westex, Inc., for its most recent period is given below: Total Unit Sales $ 1,000,000 $ 50.00 Variable expenses 600,000 30.00 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Contribution margin 400,000 20.00 Fixed expenses 320,000 16.00 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Net operating income 80,000 4.00 Income taxes @ 40% 32,000 1.60 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Net income $ 48,000 $ 2.40 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ The company had average operating assets of $500,000 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. (Omit the "%" sign in your response.) 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 $10,000 per period by using less costly materials. (Omit the "%" sign in your response.) 3. 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.) (Round the "turnover" answer to 1 decimal place and all other answers to the nearest percentage. Omit the "%" sign in your response.) 4. Sales are increased by $100,000; operating assets remain unchanged. (Round your intermediate calculations and final answers to 2 decimal places.Omit the "%" sign in your response.) 5. The company issues bonds and uses the proceeds to purchase $125,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $15,000 per period. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per period. (Round your answers to 1 decimal place. Omit the "%" sign in your response.) 6. The company invests $180,000 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 the "turnover" answer to 3 decimal places and all other answers to the nearest percentage. Omit the "%" sign in your response.) 7. Obsolete inventory carried on the books at a cost of $20,000 is scrapped and written off as a loss. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

The contribution format income statement for Westex, Inc., for its most recent period is given below:

  

	Total		Unit
Sales	$	1,000,000	$	50.00
Variable expenses		600,000		30.00
Contribution margin		400,000		20.00
Fixed expenses		320,000		16.00
Net operating income		80,000		4.00
Income taxes @ 40%		32,000		1.60
Net income	$	48,000	$	2.40

  

The company had average operating assets of $500,000 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. (Omit the "%" sign in your response.)
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 $10,000 per period by using less costly materials. (Omit the "%" sign in your response.)
3.	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.) (Round the "turnover" answer to 1 decimal place and all other answers to the nearest percentage. Omit the "%" sign in your response.)
4.	Sales are increased by $100,000; operating assets remain unchanged. (Round your intermediate calculations and final answers to 2 decimal places.Omit the "%" sign in your response.)
5.	The company issues bonds and uses the proceeds to purchase $125,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $15,000 per period. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per period. (Round your answers to 1 decimal place. Omit the "%" sign in your response.)
6.	The company invests $180,000 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 the "turnover" answer to 3 decimal places and all other answers to the nearest percentage. Omit the "%" sign in your response.)
7.	Obsolete inventory carried on the books at a cost of $20,000 is scrapped and written off as a loss. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

 

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