Question

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

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

Sales	$	1,500,000
Variable expenses		730,000
Contribution margin		770,000
Fixed expenses		470,000
Net operating income	$	300,000
Average operating assets	$	937,500

This year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics:

Sales	$	580,000
Contribution margin ratio		70	% of sales
Fixed expenses	$	319,000

The company’s minimum required rate of return is 10%.

1.What is last year’s margin? margin%?

2.What is last year’s turnover? turnover ? (Round your answer to 1 decimal place.

5.

What is the turnover related to this year’s investment opportunity? (Round your answer to 1 decimal place.) turnover?

6.	What is the ROI related to this year’s investment opportunity? ROI %?

       

      

Answer 1

Answer 1.

Last Year’s Margin = Net Operating Income / Sales
Last Year’s Margin = $300,000 / $1,500,000
Last Year’s Margin = 20%

Answer 2.

Last Year’s Turnover = Sales / Average Operating Assets
Last Year’s Turnover = $1,500,000 / $937,500
Last Year’s Turnover = 1.60

Answer 5.

This Year’s Investment Opportunity:

Average Operating Assets = ($362,500 + $0) / 2
Average Operating Assets = $181,250

Turnover = Sales / Average Operating Assets
Turnover = $580,000 / $181,250
Turnover = 3.20

Answer 6.

This Year’s Investment Opportunity:

Average Operating Assets = ($362,500 + $0) / 2
Average Operating Assets = $181,250

ROI = Net Operating Income / Average Operating Assets
ROI = $87,000 / $181,250
ROI = 48%