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ID: 2562656 • Letter: D
Question
D Frontier Mal lomeMSN ! Mail Welcome tore Dsearchi sojnin DVeruon Mylenzon2 Dw Connect ACCOUNTING Making the Connection Question 1 (of 4) Posters.com is a small Internet retailer of high-quality posters. The company has $740,000 in operating assets and fixed expenses of $160,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5,000,000 per year The company's contribution margin ratio is 9%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 9 cents. Required: 1. Complete the following table showing the relation between sales and return on investment (ROI) (rounded) (Round your percentage answers to 2 decimal places.) Average Sales Net Operating Operating ROI Income Assets 4,500,000 245000 740,000 4,600,000 4,700,000 4,800,000 4,900,000 5,000,000 $ 740,000 $ 740,000 $ 740,000 S 740,000 S 740,000 9% 2. What happens to the company's return on investment (ROl) as sales increase? Increases DecreasesExplanation / Answer
Answer 1
Net Operating Income = (Sales* Contribution - Fixed Expense)
ROI = Net Operating Income / Net Operating Assets
Note : For every additional dollor of sales net operating income increase by 9 cents . Thus for every $100,000 incrase in sales net operating income will increase by $9,000.
Computation Showing relation between sales & ROI
Sales ($)
A
Net operating Income ($)
B
Net operating Assets ($)
C
ROI (%)
D= (B/C)*100
Answer 2
As the sales increases Company's ROI also Increases (is option 1)
Explanation - As sales incraese by $100,000 the net operating income also increase by $9,000 . Thus ROI increases by ($9,000 / $ 740,000) = 1.22 % (approx).
Sales ($)
A
Net operating Income ($)
B
Net operating Assets ($)
C
ROI (%)
D= (B/C)*100
4,500,000 245,000 740,000 33.11 4,600,000 245,000 + 9,000 = 254,000 740,000 34.32 4,700,000 254,000 +9,000 = 263,000 740,000 35.54 4,800,000 263,000 +9,000 = 272,000 740,000 36.76 4,900,000 272,000+9,000=281,000 740,000 37.97 5,000,000 281,000+9,000=290,000 740,000 39.19Related Questions
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