the Board of Directors of BX Corporation treats the BX as an investment center i
ID: 2453812 • Letter: T
Question
the Board of Directors of BX Corporation treats the BX as an investment center in evaluating performance of the BX President, using return on investment as one of the performance measures. In 2014, BX Corporation had sales of $450,000, a variable cost ratio of 60%, and fixed expenses of $80,000. Beginning and ending average operating assets in 2014 were $1,800,000 and $2,200,000, respectively. Calculate BX’s return on investment for last year and enter here________. If BX’s return on investment for 2013 was 4%, would you expect the President’s performance evaluation for 2014 to be favorable or unfavorable?_____________
Explanation / Answer
Calculation of profit for the year
Sales = $450000
Variable Cost = 60% = $270000
Contribution margin = 450000 - 270000 = $180000
Fixed Cost = $80000
Profit = 180000 - 80000 = $100000
Average Investment in Operating Assets = (1800000 + 2200000)/2= $2000000
Return on Investment = 100000 / 2000000 = 5%
Sine, the return on investment for 2014 was 4%, the performance of the President seems to be favourable
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