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The contribution format income statement for Huerra Company for last year is given below:

	Total		Unit
Sales	$	996,000	$	49.80
Variable expenses		597,600		29.88
Contribution margin		398,400		19.92
Fixed expenses		318,400		15.92
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 $492,000 during the year.

(I was able to solve 1-4 but need help with 5,6 and 7)

REQUIRED:

All of the effects have already been checked and are correct.

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 answer to 2 decimal places.) Margin Turnover 14(31 8.03 2.02 16.261% 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 RO figure. Consider each question separately, starting in each case from the data used to compute the original ROl in (1) above. 2. 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 short-term creditors.) (Round your answers to 2 decimal places.) Effect 8.031% Unchanged 2.54Increase Turnover ROI 3. The company achieves a cost savings of $15,000 per year by using less costly materials. (Round your answers to 2 decimal places.) Effect 9.541% increase 2.02 2changed Turnover ROI 19.27 : % increase 4. The company issues bonds and uses the proceeds to purchase $127,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $11,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $6,000 per year. Round your answers to 2 decimal places.) Effect Margin Turnover ROI 8.631% increase 1.61 ecrease 13.89:% Decrease 5. Sales are increased by 10%; operating assets remain unchanged. (Round your answers to 2 decimal places.) Effect Margin Turnover ROI % increase Increase 1% increase 2.23 6. Obsolete inventory carried on the books at a cost of $15,000 is scrapped and written off as a loss (Round your answers to 2 decimal places.) Effect % Decrease Margin Turnover ROI ncrease % Decrease 7. The company uses $181,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock. (Round your answers to 2 decimal places.) Effect % Unchanged Margin Turnover ROI ncrease % Increase

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