Investing $2,000,000 in TQM\'s Channel Support Systems initiative will at a mini

Question

Investing $2,000,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 3.0% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,405,682. Assuming similar sales next year, the 3.0% increase in demand will provide $4,902,170 of additional revenue.   With the overall contribution margin of 34.1%, after direct costs this revenue will add $1,671,640 to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's levels. How long will it take to achieve payback on the initial $2,000,000 TQM investment, rounded to the nearest month?

Explanation / Answer

Last year sale          163,405,682 Additonal sale 3% Additonal sale               4,902,170 Contribution margin 34.10% Contribution               1,671,640 Initial investment               2,000,000 Payback period =2000000*12/1671640 Payback period                       14.36 months Payback period 15 months

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