Problem:
The Appliance Division of Malone Manufacturing Company reported the following results for 2014:
- Sales.......................... $6,000,000
- Variable costs .................. 3,200,000
- Controllable fixed costs........ 2,000,000
- Average operating assets........ 5,000,000
Management is considering the following independent alternative courses of action in 2015 in order to maximize the return on investment for the division.
1.Reduce controllable fixed costs by 10% with no change in sales or variable costs.
2.Reduce average operating assets by 15% with no change in controllable margin.
3.Increase sales 10% with no change in the contribution margin percentage.
Required:
Question 1: Compute the return on investment for 2014.
Question 2: Compute the expected return on investment for each of the alternative courses of action.
Note: Explain all calculation and formulas.