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 $770,000 in operating assets and fixed expenses of $156,000 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 10%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 10 cents.

Required:

1. Complete the following table showing the relationship between sales and return on investment (ROI).

Sales Net Opeing Average ROI Income Assets 4,700,000 4,800,000 4,900,000 5,000,000 5,100,000 5,200,000 $ 314,000 770,000 $ 770,000 $ 770,000 $ 770,000 $ 770,000 $ 770,000

Explanation / Answer

ROI = (Net operating Income / Average Operating assets) %

ROI

%

Sales Net Operating Income (B) Average Operating Assets

ROI

%

A (Sales * Contri%) - Fixed costs (C) D = B / C $4,700,000 $(4,700,000 * 10 %) - $156,000 = $314,000 $770,000 40.78% $4,800,000 $(4,800,000 * 10 %) - $156,000 = $324,000 $770,000 42.08% $4,900,000 $(4,900,000 * 10 %) - $156,000 = $334,000 $770,000 43.38% $5,000,000 $(5,000,000 * 10 %) - $156,000 = $344,000 $770,000 44.68% $5,100,000 $(5,100,000 * 10 %) - $156,000 = $354,000 $770,000 45.97% $5,200,000 $(5,200,000 * 10 %) - $156,000 = $364,000 $770,000 47.27%

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