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Calculate the return on investment for the current year

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Reference no: EM132520123

Question - The Blue division of the Leaf Company reported the following data for the current year:

Sales $2,600,000

Variable Cost $2, 100,000

Controllable Fixed Cost $450,000

Average Operating Assets $5,050,000

Senior Management is unhappy with the investment centre's return on investment. It asks the manager of the Blue division to submit plans to improve the ROI in the next year. The manager believes it is reasonable to consider each of the following independent courses of action.

1. Increase sales by $270,000 with no change in the contribution margin percentage

2. Reduce variable costs by $120,000

3. Reduce average operating assets by 4.5%

Required -

1. Calculate the return on investment for the current year.

2. Using the ROI formula, calculate the ROI under each of the proposed courses of action (Round to one decimal)

Condition 1 - ROI =2.0 %

Condition 2 - ROI = 3.4%

Condition 3 ROI = 1.0%

yes?

Reference no: EM132520123

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