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Homework answers / question archive / Westerville Company reported the following results from last year's operations:       Sales $ 2,000,000       Variable expenses   640,000             Contribution margin   1,360,000       Fixed expenses   860,000             Net operating income $  500,000             Average operating assets $ 1,250,000               This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics:         Sales $ 400,000     Contribution margin ratio   70  % of sales   Fixed expenses $ 220,000       The company's minimum required rate of return is 10%

Westerville Company reported the following results from last year's operations:       Sales $ 2,000,000       Variable expenses   640,000             Contribution margin   1,360,000       Fixed expenses   860,000             Net operating income $  500,000             Average operating assets $ 1,250,000               This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics:         Sales $ 400,000     Contribution margin ratio   70  % of sales   Fixed expenses $ 220,000       The company's minimum required rate of return is 10%

Accounting

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

   
  Sales $ 2,000,000    
  Variable expenses   640,000    
     
  Contribution margin   1,360,000    
  Fixed expenses   860,000    
     
  Net operating income $  500,000    
     
  Average operating assets $ 1,250,000    
     
 


 

This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics:


 

   
  Sales $ 400,000  
  Contribution margin ratio   70  % of sales
  Fixed expenses $ 220,000  
 
 

The company's minimum required rate of return is 10%.

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

 

2. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.)

 

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Answer:

 

Last Year New Investment
Sales                                2,000,000            400,000            2,400,000
Variable expense                                    640,000
Contribution margin                                1,360,000            280,000            1,640,000
Fixed Expense                                    860,000            220,000            1,080,000
Net Operatin Asset                                    500,000               60,000                560,000
Average Operating Asset                                1,250,000            250,000            1,500,000
Minimum required rate of return 10%
              40,000                240,000
Margin for last year $ 560,000.00
ROI: (560000/1500000)*100 37%
Margin related to new investment $    60,000.00
Turnover related to new investment $ 400,000.00
ROI related to new investment (60000/250000)*100 24%
Residual Income (560000-240000) $ 320,000.00
Residual Income related to new investment $    20,000.00

 

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