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?

Select: 1

	14 months
	5 months
	10 months
	TQM investment will not have a significant financial impact

Answer 1

Answer: - Option "1" ------ 14 Months

Explanation:

Given data

Investing in TQM = $2,000,000

Minimum increase in demand = 3.0 %

Last year’s sales = $163,405,682

As per the given data next year sales is increased by 3.0%. So, 3.0% of last year sales

=> 0.03 * $163,405,682 = $4902170.46 ~= $4,902,170

Revenue added to the bottom line = 34.1% of increased demand

=> 0.341 * $4,902,170 = $1671639.97 ~= $1,671,640

Payback on the initial $2,000,000 TQM investment can be achieved in a period can be calculated using the formula

=> (Investment in TQM / revenue added to the bottom line) * 12

=> ($2,000,000 / $1,671,640)*12 = 14.35 ~= 14 Months