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 $163,189,230. Assuming similar sales next year, the 3.0% increase in demand will provide $4,895,677 of additional revenue. With the overall contribution margin of 34.1%, after direct costs this revenue will add $1,669,426 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? A) 5 months B) TQM investment will not have significal financial impact C)10 months D) 14 months

Answer 1

As mentioned through calculation done, annual increase in bottomline through increase in contribution margin = $ 1669426

We need to find out how many months it will take to increase bottomline by $2,000,000 so that it compensates necessary investment made.

It takes 12 months to add $ 1666426 to the bottomline

Therefore, amount of time it will take to to increase bottomline by $2,000,000

= 2,000,000/ 1666426 x 12

= 14.40 months ( 14 months rounded to nearest whole number )

ANSWER : D ) 14 MONTHS