Westerville Company reported the following results from last year\'s operations:

Question

Westerville Company reported the following results from last year's operations: Sales Variable expenses Contribution marain Fixed expenses Net operating income $2,000,000 640,000 1,360,000 860,000 $500,000 Average operating assets 1,250,000 At the beginning of this year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics Sales Contribution margin ratio Fixed expenses $400,000 70% of sales 220,000 The company's minimum required rate of return is 10%.

Explanation / Answer

Answer

Sales

400000

Contribution margin [400000 x 70%]

280000

Fixed Expenses

220000

Net Operating Income [280000 – 220000]

60000

Net Operating Income

60000

Sales

400000

Margin on Sale [60000 / 400000]

15%

Net Operating Income

60000

Investment

250000

Return Margin [60000 / 250000]

24%

Sales

400000

Contribution margin [400000 x 70%]

280000

Fixed Expenses

220000

Net Operating Income [280000 – 220000]

60000

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