Question

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

Sales	$	1,000,000
Variable expenses		300,000
Contribution margin		700,000
Fixed expenses		500,000
Net operating income	$	200,000
Average operating assets	$	625,000

At the beginning of this year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:

Sales	$	200,000
Contribution margin ratio		60	% of sales
Fixed expenses	$	90,000

The company’s minimum required rate of return is 15%.

Required:

1. What is last year’s margin?

Answer 1

Answer : Margin = 20 %

>> Margin = Net operating income * 100 / Sales.

>> Last year's Margin = ( $ 200000 * 100 ) / $ 1000000 = 20 %