Foundational [LO11-1, LO11-2] [The following information applies to the question

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

In the above formula,
   A = Department's net operating income;
   B = Minimum required return on assets; and
   C = Average operating assets of the department

460000-(1437500*15%) = $244375

(12) 69000-(287500*15%)= 25875

(13) 529000-(1725000*15%) = $270250

(14) yes he can pusue the investment opportunity

(15) (460000+23000)/(287500+1437500)*15% = 224750

No he can't pusue the investment opportunity as there is no bonus

(11) Residual Income (RI) = A (B × C)

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