Westerville Company reported the following results from last year's operations:

Sales $1,500,000

Variable expenses 730,000

Contribution margin 770,000

Fixed expenses 470,000

Net operating income $300,000

Average operating assets $937,500

At the beginning of this year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics:

Sales $580,000

Contribution margin ratio 70 % of sales

Fixed expenses $319,000

The company's minimum required rate of return is 10%.

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?

e. What is the turnover related to this year's investment opportunity?

Question

Business

Alivia Phelps

5 December, 17:25

Westerville Company reported the following results from last year's operations:

Sales $1,500,000

Variable expenses 730,000

Contribution margin 770,000

Fixed expenses 470,000

Net operating income $300,000

Average operating assets $937,500

At the beginning of this year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics:

Sales $580,000

Contribution margin ratio 70 % of sales

Fixed expenses $319,000

The company's minimum required rate of return is 10%.

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?

e. What is the turnover related to this year's investment opportunity?

+4

Answers (1)

Know the Answer?

Jaylin Hester · Answer 1

A. 20%

B. 1.6

C 32%

D. 15%

E. 1.6

Explanation:

(1) Margin = operatin income / net sales

= 300,000/1,500,000

= 20%

(2) turonver = sales / Average total assets

= 1,500,000/$937,500

= 1.6

(3) ROI = 1.6*20 = 32%

(4) Margin = 580,000 * 70% - 319,000

=406,000-319,000

= $87, 000

= 87,000/580,000 = 15%

(5) Turnover = 580,000/362,500 = 1.6