Required informatio [The following information applies to the questions displaye

Question

Required informatio [The following information applies to the questions displayed below.] Westerville Company reported the following results from last year's operations Sales Variable expenses Contribution margin Fixed expenses Net operating income 1,600,000 700,000 900,000 660,000 $240,000 Average operating assets $ 1,000,000 At the beginning of this year, the company has a $325,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses 520,000 70% of sales 312,000 The company's minimum required rate of return is 15%.

Explanation / Answer

Margin = 240000+(520000*70%-312000) = 292000

Sales = 1600000+520000 = 2120000

Average operating assets = 1000000+325000 = 1325000

7) Margin = 292000*100/2120000 = 13.8%

8) Turnover = 2120000/1325000 = 1.6

9) ROI = 292000*100/1325000 = 22.0%

12) Residual income = 52000-(325000*15%) = 3250

13) Residual income = 292000-(1325000*15%) = 93250

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