[The following information applies to the questions displayed below.] Westervill

Question

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

Explanation / Answer

Existing New opportunity Total Sale    1,600,000                     520,000    2,120,000 Variable expense     (700,000)                  (156,000)     (856,000) Contribution       900,000                     364,000    1,264,000 Contribution ratio =1264000/2120000 Contribution ratio 59.6%

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