Westerville Company reported the following results from last year’s operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 At the beginning of this year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 The company’s minimum required rate of return is 15%.
10-a. 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 pursue the investment opportunity? Yes No
10-b. Would the owners of the company want her to pursue the investment opportunity? Yes No
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?
Below question based on multiple formula . I used all Alphabetic to derived FORMULA ( Like a, b c .... etc..)
Residual Income last year , current year plus at consolidated level = formula based calculation - Updated in below answer sheet .
Any understanding issue , let me know .
| Westerville Compaby reported | ||
| Amount ($) | ||
| Sales (a) | 12,00,000 | |
| Variable cost(b) | 3,20,000 | |
| Contribution Margin (a-b)=c | 8,80,000 | |
| Fixed Expenses (d) | 6,40,000 | |
| Net Operating Income (c-d)=e | 2,40,000 | |
| Last year Margin====(e/a) | 20% | |
| Average Operating cost-f | 6,00,000 | |
| Last year turnover (a/f) | 2.00 | Times |
| ROI (e/f) | 40% | |
| Initial Investment(J) | 1,50,000 | |
| Sales (I) | 2,40,000 | |
| Contribution Margin ( 50% of Sales)(g) | 1,20,000 | |
| Fixed Expenses (h) | 84,000 | |
| Margin(g-h)== K | 36,000 | |
| Margin %(k/i) | 15% | |
| Turnover (I/J) | 1.60 | Times |
| ROI(K/J) | 24% | |
| Company Minimum Required return | 15% | |
| Total Sales (a+i)= L | 14,40,000 | |
| Total Margin(e+k)=M | 2,76,000 | |
| Margin %(M/L) | 19% | |
| Operating Asset ( f+j)= N | 7,50,000 | |
| Turnover (L/N) | 1.92 | Times |
| ROI(M/N) | 37% | |
| Last Year residual Income | 150000 | |
| Margin - Minimum Return on Asset | ||
| ('240000-15%*600000 | ||
| Residual income current Year | 13500 | |
| Margin - Minimum Return on Asset | ||
| ('36000-15%*1,50,000 | ||
| Consolidated level Residual Income | 163500 | |
| Margin - Minimum Return on Asset | ||
| ('276000-15%*750000) |
Westerville Company reported the following results from last year’s operations: Sales $ 1,200,000 Variable expenses 320,000...
Westerville Company reported the following results from last year’s operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 At the beginning of this year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 The company’s minimum required rate of return is 15%. 10-a. If Westerville’s chief executive...
Westerville Company reported the following results from last year’s operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 At the beginning of this year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 The company’s minimum required rate of return is 15%. 14. If Westerville’s chief executive...
Westerville Company reported the following results from last year’s operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 At the beginning of this year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 The company’s minimum required rate of return is 15%. 14. If Westerville’s chief executive...
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