B) Sales $ 1,000,000 Variable expenses 300,000 700,000 Contribution margin 500,0
ID: 2475685 • Letter: B
Question
B)
Sales $ 1,000,000
Variable expenses 300,000
700,000 Contribution margin
500,000 Fixed expenses
200,000 Net operating income
$ 625,000 Average operating assets
This year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:
Sales $ 200,000 Contribution margin ratio 60 % of sales Fixed expenses $ 90,000
The company’s minimum required rate of return is 15%.
value: 0.33 points Foundational 11-11 11. What is last year's residual income? Residual incomeExplanation / Answer
11.
Net operating income=$200,000
Average Operating Expenses=$625,000
Minimum required rate of return=$625,000*15%=$93,750
Residual income=$200,000-$93,750=$106,250
Residual income income rate=$106,250*100/$625,000=17%
12.
Investment=$120,000
The company’s minimum required rate of return =15%
Operating Income=60%*Sales-Fixed cost=$200,000*60%--$90,000=$120,000-$90,000=$30,000
Minimum required rate of return=$120,000*15%=$18,000
Residua Income=$30,000-$18,000=$12,000
Residual income rate this year=$12,000*100/$120,000=10%
14.
Residual income for last year=$106,250
Residual income rate for last year=17%
Residual income for this year=$18,000
Residual income rate for last year=10%
No, Residual income for this year will not exceed residual income for the last year
15-a
Operating income=$200,000*50%-$90,000=$10,000
No, Residual income for this year will not exceed residual income for the last year
15-b.
No
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