Question

What is the turnover related to the year's investment opportunity?

CHAPTER 11: CHAPTER END REVIEW A 111 LO Best Sleep Company reported the following results from last year's operations: Sales $ 1,500,000 Variable expenses 650,000 Contribution margin 850,000 Fixed expenses 580,000 Net operating income $ 270,000 Average operating assets $ 1,000,000 At the beginning of this year, the company has a $160,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $ 240,000 70 % of sales $ 144,000 The company's minimum required rate of return is 10%.

What is the ROI related to this year's investment opportunity?

If the company pursues the investment opportunity and otherwise performs the same as last year, What margin will it earn this year?

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Answer 1

Turnover	$      240,000
Variable Costs	$         72,000	30% of turnover
Contribution	$      168,000
Fixed Costs	$      144,000
Profit	$         24,000	A
Investment	$      160,000	B
ROI	15%	A / B X 100

			TOTAL
Turnover	$   1,500,000	$           240,000	$ 1,740,000
Variable Costs	$      650,000	$             72,000	$    722,000
Contribution	$      850,000	$           168,000	$ 1,018,000
Fixed Costs	$      580,000	$           144,000	$    724,000
Profit	$      270,000	$             24,000	$    294,000
Investment	$   1,000,000	$           160,000	$ 1,160,000
ROI	27%	15%	25.34%
Net Margin			16.90%
Contribution margin			58.51%