Exercise 11-10 Cost-Volume-Profit Analysis and Return on Investment (ROI) [LO11-1]

Posters.com is a small Internet retailer of high-quality posters. The company has $720,000 in operating assets and fixed expenses of $163,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5,300,000 per year. The companys contribution margin ratio is 10%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 10 cents.

Required:

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

2. What happens to the companys return on investment (ROI) as sales increase?

Average Sales Net OperatingOperating ROI Income Assets $317,000$ 720,000 $720,000 $720,000 $720,000 $720,000 $720,000 0 4,800,000 4,900,000 5,000,000 5,100,000 5,200,000 5,300,000 0 0 0 0 0 0 0