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The South Division of Wiig Company reported the following data for the current year.
The South Division of Wiig Company reported the following data for the current year.Sales $3,000,000
Variable costs $2,010,000
Controllable fixed costs $605,000
Average operating assets $5,000,000
Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROl in the next year. The manager believes it is feasible to consider the following independent courses of action.
1. Increase sales by $300,000 with no change in the contribution margin percentage.
2. Reduce variable costs by $160,000.
3. Reduce average operating assets by 3%.
Required:
Compute the ROI under each of the proposed courses of action.
Increase sales by $300,000 with no change in the contribution margin percentage: 25.8% Reducevariable costsby $160,000: 4.6% Reduce averageoperating assetsby 3%: 21.9%.To compute the ROI under each proposed course of action, we need to calculate the operating income and the average operating assets for each scenario. The ROI formula is:ROI = Operating Income / Average Operating AssetsLet's calculate the ROI under each course of action:Increase sales by $300,000 with no change in the contribution margin percentage:Operating Income= (Sales - Variable Costs) - Controllable Fixed Costs= ($3,000,000 + $300,000 - $2,010,000) - $605,000= $1,290,000Average Operating Assets remains the same at $5,000,000.ROI= $1,290,000 / $5,000,000= 0.258 or 25.8%Reduce variable costs by $160,000:Operating Income = (Sales - Variable Costs) - Controllable Fixed Costs= ($3,000,000 - $160,000 - $2,010,000) - $605,000= $230,000Average Operating Assets remains the same at $5,000,000.ROI = $230,000 / $5,000,000= 0.046 or 4.6%Reduce average operating assets by 3%:Operating Income remains the same at $1,060,000.Average Operating Assets = $5,000,000 - (3% * $5,000,000)= $5,000,000 - $150,000= $4,850,000ROI = $1,060,000 / $4,850,000= 0.219 or 21.9%So, the ROI under each proposed course of action is as follows:Increasesalesby $300,000 with no change in the contribution margin percentage: 25.8%Reduce variable costs by $160,000: 4.6%Reduce average operating assets by 3%: 21.9%Learn more aboutROIhere:brainly.com/question/30049040#SPJ11...