Sweetums Inc. reported the following results from last year\'s operations: Sales
ID: 2515518 • Letter: S
Question
Sweetums Inc. reported the following results from last year's operations:
Sales
$12,600,000
Variable expenses
9,380,000
Contribution margin
3,220,000
Fixed expenses
2,716,000
Net operating income
$504,000
Average operating assets
$7,000,000
At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics:
Sales
$560,000
Contribution margin ratio
50% of sales
Fixed expenses
$246,400
5.aIf the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.)
b. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
Sales
$12,600,000
Variable expenses
9,380,000
Contribution margin
3,220,000
Fixed expenses
2,716,000
Net operating income
$504,000
Average operating assets
$7,000,000
Explanation / Answer
Answer
Normal
Investment opportunity
Total
Sales
$12600000
$560000
$13160000
(-) Variable expenses
$9380000
$280000
$9660000
Contribution margin
$3220000
$280000
$3500000
(-) Fixed expenses
$2716000
$246400
$2962400
Net operating income
$504,000
$33,600
$537,600
Average operating assets
$7,000,000
$800,000
$7,800,000
Total Turnover will be $13,160,000 [total sales revenue calculated above]
Overall ROI = Net Income [overall] / Average operating assets [overall]
= $537,600 / $7,800,000
= 6.89% or 6.9%
Normal
Investment opportunity
Total
Sales
$12600000
$560000
$13160000
(-) Variable expenses
$9380000
$280000
$9660000
Contribution margin
$3220000
$280000
$3500000
(-) Fixed expenses
$2716000
$246400
$2962400
Net operating income
$504,000
$33,600
$537,600
Average operating assets
$7,000,000
$800,000
$7,800,000
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