Question

The Pacific Division of Henson Industries reported the following data for the current year.

Sales		$4,000,000
Variable costs		2,600,000
Controllable fixed costs		800,000
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 Pacific Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.

1.		Increase sales by $400,000 with no change in the contribution margin percentage.
2.		Reduce variable costs by $120,000.
3.		Reduce average operating assets by 4%

a. Compute the return on investment (ROI) for the current year. I already did this and got an answer of 12% which is correct.

b.Using ROI formula, compute the ROI under each of the proposed courses of action.

For proposed action one the answers 12% and 13.2% are wrong. THIS IS WHAT I NEED HELP WITH. I cannot determine why I did not get the right answer.

For proposed action two I got 14.4% which is correct.

For proposed action three I got 12.5% which is correct.

Answer 1