Problem 3 Textbook Reference P97 Determine margin turnover a

Problem 3 (Textbook Reference: P9-7)- Determine margin, turnover, and retura on investmeat for a segment and the effect on each when the variables are changed The manager of the Winston Company faced the following data for the year 2015: Contribution to indirect expenses Assets directly used by and identified with the segment Sales s 1,800,000 S 22,500,000 S 36,000,000 Required: Determine the effect on margin, turnover, and return on investment of the segment in 2015 if each of the following changes were to occur. Consider each change separately and assume that any items not specifically mentioned remain the same as in 2014. (1) A campaign to control costs resulted in $180,000 of reduced expenses. Round each answer to two decimal places. Margin: 1980000 b. Turnover 30oo0COD c. Return on Investment:0 ) Certain nonproductive assets were eliminated. As a result, investment decreased by $900,000, and expenses decreased by $72,000. Round each answer to two decimal places. a. Margin: 812000 c. Return on Investment: (3) An advertising campaign resulted in increasing sales by $3,600,000, cost of goods sold by $2,700.000, and advert expense by $540,000. Round each answer to two decimal places. a. Margin: 21L00000 b. Turnover:3glepano c. Return on Investment: au increased by $360,000, and expenses (4) An investment was made in productive assets costing $900,000. As a result, sales increased by $54,000. Round each answer to two decimal places a. Margin: 21???? b. Tunover: c. Return on Investment: 14

Solution

(1)

Reduction in expenses = $180,000 . Hence, margin will increase by $180,000. There will be no affect on turnover . Due to increase in margin, return on investment will increase.

Your calculations and answers are correct.

(2)

Decrease in investment = $900,000

Decrease in expenses = $72,000

Hence, investment will be 22,500,000 - 900,000 = $21,600,000

Due to decrease in expenses, margin will increase by $72,000

Margin will be = 1,800,000 + 72,000

= $1,872,000

Your calculations and answers are correct in this case too.

(3)

Increase in sales = $3,600,000

Increase in cost of goods sold = $2,700,000

Increase in advertising expenses = $540,000

Now, sales will be = 36,000,000 + 3,600,000

= $39,600,000

Now margin will be = 1,800,000 + 3,600,000 - 2,700,000 - 540,000

= $2,160,000

There will be no change in assets.

Your calculations and answers are correct in this case too.

(4)

Increase in assets = $900,000

Increase in sales = $360,000

Increase in expenses = $54,000

Now, margin will be = 1,800,000 + 360,000 - 54,000

= $2,106,000

Now, sales will be = 36,000,000 + 360,000

= $36,360,000

Now, investment will be = 22,500,000 + 900,000

= $23,400,000

Your calculations and answers are correct in this case too.