(((Please show steps to how you got the Answers:)) Westerville Company reported
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(((Please show steps to how you got the Answers:)) Westerville Company reported the following results from last year’s operations: Sales $ 1,000,000 Variable expenses 300,000 Contribution margin 700,000 Fixed expenses 500,000 Net operating income $ 200,000 Average operating assets $ 625,000 This year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics: Sales $ 200,000 Contribution margin ratio 60 % of sales Fixed expenses $ 90,000 The company’s minimum required rate of return is 15%. 1. value: 1.00 points Required information Required: 1. What is last year’s margin? References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 2. value: 1.00 points Required information 2. What is last year’s turnover? (Round your answer to 1 decimal place.) References eBook & Resources eBook: Compute residual income and understand its strengths and weaknesses. eBook: Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Check my work 3. value: 1.00 points Required information 3. What is last year’s return on investment (ROI)? References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 4. value: 1.00 points Required information 4. What is the margin related to this year’s investment opportunity? References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 5. value: 1.00 points Required information 5. What is the turnover related to this year’s investment opportunity? (Round your answer to 2 decimal places.) References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 6. value: 1.00 points Required information 6. What is the ROI related to this year’s investment opportunity? (Round your answer to the nearest whole percent.) References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 7. value: 2.00 points Required information If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)) References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 8. value: 2.00 points Required information 8. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.) References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 9. value: 2.00 points Required information 9. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)) References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 10. value: 2.00 points Required information 10-a. If Westerville’s chief executive officer will earn a bonus only if her ROI from this year exceeds her ROI from last year, would she pursue the investment opportunity? Yes No 10-b. Would the owners of the company want her to pursue the investment opportunity? Yes No References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 11. value: 2.00 points Required information 11. What is last year’s residual income? References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 12. value: 2.00 points Required information 12. What is the residual income of this year’s investment opportunity? References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 13. value: 2.00 points Required information 13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 14. value: 2.00 points Required information 14. If Westerville’s chief executive officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment opportunity? Yes No References eBook & Resources WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 15. value: 2.00 points Required information 15-a. Assume that the contribution margin ratio of the investment opportunity was 50% instead of 60%. If Westerville’s chief executive officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment opportunity? Yes No 15-b. Would the owners of the company want her to pursue the investment opportunity? Yes No
Explanation / Answer
Part 1 - Calculation of Last year's margin
Margin is profitability ratio
Margin = Operating Income/Sales
Margin = $200000/$1000000 * 100 = 20%
Part 2. Calculation of Last year's Turnover/Turnover ratio
Turnover = Sales/Average operating assets
Turnover = $1000000/$625000
Turnover = 1.6
Part 3 = Calculation of Last year's ROI (return on investment)
Return on Investment = Margin * Turnover
Return on investment = 20% * 1.6 = 32%
Part 4 - Calculation of this year's Margin
Working Note : Calculation of Net Operating Income
Margin Calculation
Part 5 - Calculation of this year's turnover
Part 6 - Calculation of ROI (return on investment)
Margin is profitability ratio
Margin = Operating Income/Sales
Margin = $200000/$1000000 * 100 = 20%
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