Westerville Company reported the following results from last year’s operations: Sales $ 1,750,000 Variable expenses 520,000...

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Westerville Company reported the following results from last year’s operations: Sales $ 1,750,000 Variable expenses 520,000...

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


Sales	$	1,750,000
Variable expenses		520,000
Contribution margin		1,230,000
Fixed expenses		880,000
Net operating income	$	350,000
Average operating assets	$	875,000

At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics:


Sales	$	320,000
Contribution margin ratio		60	% of sales
Fixed expenses	$	128,000

The company’s minimum required rate of return is 20%.

13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?

business accounting

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Answer 1

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Requirement: 13 Sales X Contribution margin ratio Contribution margin Less: Fixed expenses Net operating Income 320000 60% 19

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