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

Question

Westerville Company reported the following results from last year’s operations: Sales $ 2,300,000 Variable expenses 670,000 Contribution margin 1,630,000 Fixed expenses 1,170,000 Net operating income $ 460,000 Average operating assets $ 1,437,500 This year, the company has a $287,500 investment opportunity with the following cost and revenue characteristics: Sales $ 460,000 Contribution margin ratio 50 % of sales Fixed expenses $ 161,000 The company’s minimum required rate of return is 15%. 5. What is the turnover related to this year’s investment opportunity?

Explanation / Answer

Return required on this investment = 287,500 * .15 = 43125

Add:Fixed expense                                                         = 161,000

Contribution                                                                      = 204125

Turnover required on this investment = contribution /Contibution margin ratio

                                                                  = 204125 / .50

                                                                   = $ 408,250

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