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

Question

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

The following intormation applies to the questions displayed below.J Westerville Company reported the following results from last year's operations: Sales $1,500,000 Variable expenses 530,000 Contribution margin 970,000 Fixed expenses Net operating income Average operating assets 670,000 $300,000 $937,500 This year, the company has a $212,500 investment opportunity with the following cost and revenue characteristics $340,000 Sales Cortunii margin rinio Fixed expenses 70 % of sales $187,000 The company's minimum required rate of return is 10%

Explanation / Answer

1)

Margin = Net operating Income/Sale

Margin = 300000/1500000

Margin = 20%

2)

Turnover Ratio = Sale/Average Operating Asset

Turnover Ratio = 1500000/937500

Turnover Ratio = 1.60

3)

ROI = Net Operating Income/Average Operating Asset

ROI = 300000/937500

ROI = 32%

4)

Net Operating Income from investment Oppurtunity = (Sale *contribution margin ratio - Fixed Expenses)

Net Operating Income from investment Oppurtunity = 340000*70% - 187000

Net Operating Income from investment Oppurtunity = $ 51000

Margin = Net operating Income/Sale

Margin = 51000/340000

Margin = 15%

5)

Turnover Ratio = Sale/Average Operating Asset

Turnover Ratio = 340000/212500

Turnover Ratio = 1.60

6)

ROI = Net Operating Income/Average Operating Asset

ROI = 51000/212500

ROI = 24%

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