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Sweetums Inc. reported the following results from last year\'s operations: Sales

ID: 2515518 • Letter: S

Question

Sweetums Inc. reported the following results from last year's operations:

Sales

$12,600,000

Variable expenses

9,380,000

Contribution margin

3,220,000

Fixed expenses

2,716,000

Net operating income

$504,000

Average operating assets

$7,000,000

At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics:

Sales

$560,000

Contribution margin ratio

50% of sales

Fixed expenses

$246,400

5.aIf the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.)

b. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)

Sales

$12,600,000

Variable expenses

9,380,000

Contribution margin

3,220,000

Fixed expenses

2,716,000

Net operating income

$504,000

Average operating assets

$7,000,000

Explanation / Answer

Answer

Normal

Investment opportunity

Total

Sales

$12600000

$560000

$13160000

(-) Variable expenses

$9380000

$280000

$9660000

Contribution margin

$3220000

$280000

$3500000

(-) Fixed expenses

$2716000

$246400

$2962400

Net operating income

$504,000

$33,600

$537,600

Average operating assets

$7,000,000

$800,000

$7,800,000

Total Turnover will be $13,160,000 [total sales revenue calculated above]

Overall ROI = Net Income [overall] / Average operating assets [overall]

= $537,600 / $7,800,000

= 6.89% or 6.9%

Normal

Investment opportunity

Total

Sales

$12600000

$560000

$13160000

(-) Variable expenses

$9380000

$280000

$9660000

Contribution margin

$3220000

$280000

$3500000

(-) Fixed expenses

$2716000

$246400

$2962400

Net operating income

$504,000

$33,600

$537,600

Average operating assets

$7,000,000

$800,000

$7,800,000