Question

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

Sales	$	2,000,000
Variable expenses		640,000
Contribution margin		1,360,000
Fixed expenses		860,000
Net operating income	$	500,000
Average operating assets	$	1,250,000

This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics:

Sales	$	400,000
Contribution margin ratio		70	% of sales
Fixed expenses	$	220,000

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

Required:

1.	What is last year’s margin?

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

3.	What is last year’s return on investment (ROI)?

4.	What is the margin related to this year’s investment opportunity?

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

Answer 1