0 Required information The following information applies to the questions displa
ID: 2516554 • Letter: 0
Question
0 Required information The following information applies to the questions displayed below] Westerville Company reported the following results from last year's operations: Part 1 of 15 points Sales Variable expenses Contribution margin Fixed expenses Net operating income 2,200,000 660,000 1,540,000 1,100,000- $440,000 $1,375.000 Average operating assets At the beginning of this year, the company has a $275,000 investment opportunity with the following cost and reven characteristics Print Sales Contribution margin ratio Fixed expenses 440,000 60 t of sales References s 220,000 The company's minimum required rate of return is 15%. Required: 1. What is last year's margin? 1 2 3 15 of 15 Next>
Explanation / Answer
Solution:
Part 1 --- Last year’s Margin
Last Year’s Margin = Net Operating Income /Sales x 100
= 440,000 / 2,200,000 x 100
= 20%
Part 2 – Last Year’s Turnover
Turnover = Sales / Average Operating Assets
= 2,200,000 / 1,375,000
= 1.6 times
Part 3 – Last Year’s Return on Investment
Return on Investment = Margin x Turnover = 20%*1.6 = 32%
Or
Return on Investment = Net Operating Income / Average Operating Assets x 100
= 440,000 / 1375,000 x 100
= 32%
Part 4 – Margin related to this year’s investment opportunity
Net Operating Income from Investment Opportunity
Sales
$440,000
Contribution Margin (60% of sales)
$264,000
Less: Fixed Expenses
$220,000
Net Operating Income
$44,000
Margin related to Investment Opportunity = Net Operating Income of opportunity / Investment x 100
= $44,000 / 275,000 x 100
= 16%
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Sales
$440,000
Contribution Margin (60% of sales)
$264,000
Less: Fixed Expenses
$220,000
Net Operating Income
$44,000
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