[The following information applies to the questions displayed below.j Westerile

Question

[The following information applies to the questions displayed below.j Westerile Company reportes e folowing resuts rom astyers operatons $2,200,000 660,000 Sales Variable expenses 1,540,000 1,100,000 Contribution margin Fixed expenses Net operating income Average operating assets $440,000 $ 1,375,000 This year, the company has a $275,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $440,000 60% of sales The company's minimum required rate of return is 15%.

Explanation / Answer

1.Margin=Profit/Sales * 100

Profit=Sales-Cost of goods sold

Cost =Variable expenses + Fixed expenses

Cost=660,000 + 1,100,000=1,760,000

Profit=2,200,000-1,760,000=440000

Margin=440000/2200000*100=20%

2. Last year’s turnover

Turnover=Net sales/Average assets=2,200,000/1,375,000=1.6 times

3. Last year’s return on investment

ROI=Net income/Investment * 100

Investment =Assets=1,375,000

Return=440000

ROI=440000/1375000*100=32%

4. Margin related to this year’s investment opportunity

Sales    440,000

Contribution margin ratio=60% of sales=264000

Fixed expense=220,000

Contribution margin =Sales-Variable expenses

Variable expenses=176000

Cost of goods sold=Variable expenses + Fixed expenses

Cost of goods sold=176000+220000=396000

Profit=440000-396000=44000

Margin=Profit/Sales * 100

Margin=44000/440000*100=10%

5.Turnover related to this year’s investment opportunity

=44000/275000*100=16%

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