Question

Zachary Company calculated its return on investment as 10 percent. Sales are now $490,000, and the amount of total operating assets is $510,000.

Required

1. If expenses are reduced by $51,000 and sales remain unchanged, what return on investment will result? (Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45).)

2. If both sales and expenses cannot be changed, what change in the amount of operating assets is required to achieve the same result? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

Answer 1

	Current operating income (510,000*10%)	$51,000
A	IF expenses are reduced by 51,000
	Operating income after reducing exp (51,000+51,000)	$102,000
Ans	Return on investment (102,000/510,000)*100	20%
B	If both sales and expenses cannot be changed, what change in the amount of operating assets is required to achieve the same result?
	Required return on investment	20%
	Operating income	$51,000
Ans	Operating assets should be (51,000/20%)	$255,000