Cost-Volume-Profit Analysis and Return on Investment (ROl) posters.com is a small Internet retailer of high-quality posters. The company has $1,000,000 in operating assets and fixed expenses of $150,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $3,000,000 per year. The company’s contribution margin ratio is 25%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 25 cents.

Required:

1.         Complete the following table showing the relation between sales and return on investment (ROl).

2.         What happens to the company’s return on investment (ROl) as sales increase? Explain.

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Net Operating Average Sales ROI Operating Assets Income $2,500,000 $475,000 S1,000,000 S2,600,000 $1,000,000 S2,700,000 $1,000,000 $2,800,000 $1,000,000 $1,000,000 $2,900,000 ? $3,000,000 $1,000,000 %24