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

Question

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?

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.)

6.

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

7.

If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3))

8.

If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.)

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

Explanation / Answer

1) Margin = 300000*100/1500000 = 20%

2) Turnover = 1500000/937500 = 1.6 Times

3) Return on investment = 300000*100/937500 = 32%

4) Margin :

Net income on investment opportunity = (580000*70%)-319000 = 87000

Margin = 87000*100/580000 = 15%

5) Turnover = 580000/362500 = 1.6 Times

6) ROI = 87000*100/362500 = 24%

7) Margin = (300000+87000)*100/(580000+1500000) = 18.6%

8) Turnover = 2080000/1300000 = 1.6 Times

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