The following information applies to the questions displayed below Westerville C
ID: 2569164 • Letter: T
Question
The following information applies to the questions displayed below Westerville Company reported the following results from last year's operations: Salos $1,400,000 Varlable expenses 680,000 Contribution margin 720,000 Fixed expenses Net operating Income Average operating assets 440,000 $ 280,000 $ 875,000 This year, the company has a $300,000 Investment opportunity with the following cost and revenue characterlstics Sals Contribution margin ratio Fixed expenses $480,000 80 % of sales $336,000 The company's minimum required rate of return is 15%.Explanation / Answer
Notes
Sales
480000
Less: Contribution Margin
80%
Contribution
384000
Less: Fixed Expenses
336000
Net operating Income
$48000*
Ans 6
ROI=$48000(see note above)/300000x100
16%
Ans. 7 Margin
Net operating Margin
(Net operating Income + Investment operating Income/Sales x 100
(280000+48000*)/(1400000+480000) x 100
17.44%
Margin is Net operating margin.
Ans. 8
Turnover of New Investment
$480,000
Turnover of previous year
$1400000
Total Turnover
$1,880,000
Ans. 9
ROI Return/Investment x 100
(280000+48000)/(875000+300000) x 100
27.9%
Ans 6
ROI=$48000(see note above)/300000x100
16%
Ans. 7 Margin
Net operating Margin
(Net operating Income + Investment operating Income/Sales x 100
(280000+48000*)/(1400000+480000) x 100
17.44%
Margin is Net operating margin.
Ans. 8
Turnover of New Investment
$480,000
Turnover of previous year
$1400000
Total Turnover
$1,880,000
Ans. 9
ROI Return/Investment x 100
(280000+48000)/(875000+300000) x 100
27.9%
Ans. 10 a.
The management can prefer the investment opportunity because it will increase the residual income by $3000
Ans. 10b. Yes.
Notes: for 10.
Notes
Residual Income last year
Net operating Income-(Min. Req. rate x Investment)
280000-(15%*875000)
148750
Notes
Residual Income current year with investment opportunity.
Net operating Income-(Min. Req. rate*Investment)
48000-(300000*15%)
3000
Sales
480000
Less: Contribution Margin
80%
Contribution
384000
Less: Fixed Expenses
336000
Net operating Income
$48000*
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