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

Question

Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 730,000 Contribution margin 770,000 Fixed expenses 470,000 Net operating income $ 300,000 Average operating assets $ 937,500 This year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics: Sales $ 580,000 Contribution margin ratio 70 % of sales Fixed expenses $ 319,000 3. What is last year’s return on investment (ROI)?

4. What is the margin related to this year’s investment opportunity?

5. What is the turnover related to this year’s investment opportunity? (Round your answer to 1 decimal place.)

6. What is the ROI related to this year’s investment opportunity?

7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3))

Explanation / Answer

3) Statement showing computations Particulars Amount Net Operating income         300,000.00 Average Operating Assets         937,500.00 Return on investment = 300,000 /937,500 32.00% 4) Sales         580,000.00 Contribution @70%         406,000.00 Fixed Expense         319,000.00 Net income            87,000.00 Margin = 87,000/ 580,000 15% 5) Turnover = 580,000/362,500                      1.60 6) Return On investment= 87,000/362,500 24.00% 7) Sales= 1500,000 + 580,000      2,080,000.00 Net Income = 300,0000 + 87,000         387,000.00 Margin in % = 387,000/2080,000 18.61%

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