Required information [The following information applies to the questions display

Question

Required information [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 1,400,000 680,000 720,000 440,000 $ 280,000 Average operating assets 875,000 At the beginning of this year, the company has a $300,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $ 480,000 80 of sales $ 336,000 The company's minimum required rate of return is 15% 7. 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)) Margin 28.1 %

Explanation / Answer

Answer:-The margin for this year’s investment opportunity:-

Margin =Net operating income/Sales*100

             =$48000/$480000*100= 10%

Where:-

Sales =$480000

Net operating income = Sales*Contribution margin ratio – Fixed expense

                                    = ($480000*80%)-336000

                                    =$384000-$336000 =$48000

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