The Atlantic Division of Stark Productions Company reported the following results for 2016: Sales $4,000,000
Variable costs 3,200,000
Controllable fixed costs 300,000
Average operating assets 2,500,000
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.