Accounting
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Westerville Company Reported the follwoing results from last years operations:
Sales…….$1,000,000.00
Variable Expenses……..$300,000.00
Contribution Margin……..$$700,000.00
Fixed Expenses………….$500,000.00
Net Operating Income……$200,000.00
Average Operating Assets……..$625,000.00
This year the company has a $120,000.00 investment opportunity with the following cost revenue characteristics:
Sales…..$200,000.00
Contribution Margin Ratio……..60% of sales.
Fixed Expenses…..$90,000.00
Questions:
1. What is last year’s Margin?
2. What is last year’s turnover?
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?
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?
8. If the company pursues the investment opportnity and otherwise performs the same as last year, what turnover will it earn this year?
9. IF the compmany pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?
10. If Westerville’s Chief Executive Officer will earn a bonus only if her ROI from this year exceeds her ROI from last year, would she pusue the investment opportunity? Would the owners of the company want her to puruse the investment opportunity?
11. What is last year’s residual income?
12. What is the residual income of this year’s investment opportunity?
13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year>
14. If Westerville’s Chief Executive Officer will earn a hourly bonus only if her residual income from las year exceeeds her residual income from last year. Would she pursue the investment opportunity?
15. Assume that the contribution margin ratio fo the investment opportunity was P instead of `. If Westerville’s Cheif Executive Officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment oppportunity? Would the owners of the company want her to pursue the investment opportunity?
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