Foundational [LO11-1, LO11-2] [The following information applies to the question
ID: 2462800 • Letter: F
Question
Foundational [LO11-1, LO11-2] [The following information applies to the questions displayed below. 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 Net operating income Average operating assets 1,170,000 $460,000 $1,437,500 This year, the company has a $287,500 investment opportunity with the following cost and revenue characteristics: $460,000 Sales Contribution margin ratio Fixed expenses 50 % of sales $161,000 The company's minimum required rate of return is 15%.Explanation / Answer
Last year
This year
Total if both
Sales
2300000
460000
2760000
Variable expenses
670000
230000
900000
Contribution margin
1630000
230000
1860000
Fixed expenses
1170000
161000
1331000
Net operating margin
460000
69000
529000
19.17%
Average operating assets
1437500
287500
1725000
Rate of return
32%
24%
31%
Answer 6. 24%
Answer 7 19.17%
Answer 8 2760000
Answer 9 31%
Answer 10(a) No since ROI last year was 32% and this year total ROI will come 31% which is less then last year and she won’t get bonus.
Answer 10(b) yes. Since on pursuing additional opportunity owner will get additional net income of $69000 and ROI of additional investment is 24% which is also greater than required return of 15%
Last year
This year
Total if both
Sales
2300000
460000
2760000
Variable expenses
670000
230000
900000
Contribution margin
1630000
230000
1860000
Fixed expenses
1170000
161000
1331000
Net operating margin
460000
69000
529000
19.17%
Average operating assets
1437500
287500
1725000
Rate of return
32%
24%
31%
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