omework 6 1 Required information (The following information applies to the quest
ID: 2508272 • Letter: O
Question
omework 6 1 Required information (The following information applies to the questions displayed below. Westerville Company reported the following results from last year's operations Sales Variable expenses Contribution margin Fixed expenses Net operating income Average operating assets $1,500,0e 500,000 1,880,800 700,000 300,00 $1,800,eee At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics $300,0 Sales Contribution margin ratio Fixed expenses 68% of sales $132,000 The company's minimum required rate of return is 10%. 12. What is the residual income of this years investment opportunity?Explanation / Answer
Answer:
Minimum Required Income = Investment *10%
Minimum Required Income = $200,000 *10%
Minimum Required Income = $20,000
Contribution Margin = Sales * Contribution Margin Ratio
Contribution Margin = $300,000 *60%
Contribution Margin = $180,000
Net Operating Income = Contribution Margin – Fixed Expenses
Net Operating Income = $180,000 - $132,000
Net Operating Income = $48,000
Residual Income = Net Operating Income – Minimum Required Income
Residual Income = $48,000 - $20,000
Residual Income = $28,000
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