Posters.com is a small Internet retailer of high-quality posters. The company ha

Question

Posters.com is a small Internet retailer of high-quality posters. The company has $810,000 in operating assets and fixed expenses of $158,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5,200,000 per year. The company's contribution margin ratio is 11%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 11 cents Required: 1. Complete the following table showing the relation between sales and return on investment (ROI) 2. What happens to the company's return on investment (ROI) as sales increase? Complete this question by entering your answers in the tabs below Required 1 Required 2 Complete the following table showing the relation between sales and return on investment (ROI). (Round your percentage answers to 2 decimal places.)

Explanation / Answer

Req 1 Sales Net operating Average ROI % Income Operating Assets 4,700,000 359000 810,000 44.32% 4,800,000 370000 810,000 45.68% 4,900,000 381000 810,000 47.04% 5,000,000 392000 810,000 48.40% 5,100,000 403000 810,000 49.75% 5,200,000 414000 810,000 51.11% Note: Net income at sales of $ 4700,000 Contribution margn (4700,000*11%) 517000 Lless: Fixed cost 158000 Net income 359000 With every increase in Sales of $ 100,000, Contribution margin of 11% Contribution increase by $ 11,000 Hence, Net income increases by $ 11,000 Req 2: As sales increasses by $ 100,000, ROI of the c ompany is increasing by 1.36% each time.

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