1. What is last year’s margin? 2. What is last year’s turnover? Required informa

Question

1. What is last year’s margin?

2. What is last year’s turnover?

Required information The Foundational 15 [LO11-1, L011-2] The following information applies to the questions displayed below. Westerville Company reported the following results from last year's operations Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,750,000 520,000 1,230,000 880,000 350,000 Average operating assets875,000 At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics Sales Contribution margin ratio Pixed expenses $ 320,000 60% of sales $128,000 The company's minimum required rate of return is 20%.

Explanation / Answer

1. Last year’s margin is:

Margin = Net operating income / Sales = $350,000 / $1,750,000 = 20%

2. Last year’s turnover is:

Turnover = Sales / Average operating assets = $1,750,000 / $875,000 = 2.0

3. Last year’s return on investment (ROI) is:

ROI = Margin × Turnover = 20% × 2.0 = 40%

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