Westerville Company reported the following results from last year's operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 At the beginning of this year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 The company's minimum required rate of return is 15%. Required:

a. What is last year's margin?

b. What is last year's turnover?

c. What is last year's return on investment (ROI) ?

d. What is the margin related to this year's investment opportunity?

Question

Business

Forbes

29 June, 02:24

Westerville Company reported the following results from last year's operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 At the beginning of this year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 The company's minimum required rate of return is 15%. Required:

a. What is last year's margin?

b. What is last year's turnover?

c. What is last year's return on investment (ROI) ?

d. What is the margin related to this year's investment opportunity?

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Answers (1)

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Wilkinson · Answer 1

1) Last years' margin = Net operating income: Sales

= 240,000:1,200,000

= 0.2 = 20%

2) Last years' turnover = Sales : Average operating assets

= 1,200,000 : 600,000

= 2

3) Last years' return on investment = Margin ratio * turnover ratio

= 20% * 2 = 40%

4) Margin for this years' investment = Net operating income : Sales

= 36,000 : 240,000

= 0.15 = 15%