The Atlantic Division of Stark Productions Company reported the following results for 2016: Sales...

Question:

The Atlantic Division of Stark Productions Company reported the following results for 2016:

Sales$4,000,000
Variable costs3,200,000
Controllable fixed costs300,000
Average operating assets2,500,000

Management is considering the following independent alternative courses of action in 2017 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 10% with no change in controllable margin.

3. Increase sales $500,000 with no change in the contribution margin percentage.

Required:

1. Compute the return on investment for 2016.

2. Compute the expected return on investment for each of the alternative courses of action.

What Is Return On Investment:

Return on Investment is a crucial profitability metric that helps compare how efficiently companies utilize their assets to generate income. Its flexibility allows companies to compare different divisions of different sizes.

Answer and Explanation: 1

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1.

Return on investment = income / average assets

= (4,000,000-3,200,000-300,000)/2,500,000

=20%

2.

Scenario 1:

Return on investment = income /...

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Return on Investment: Definition, Formula & Example

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Chapter 25 / Lesson 6
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Find out how to calculate the return on investment. View the return on investment formula applied to real-world examples and explore how to analyze ROI.


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