Exercise 9-10 Part 1 Net Operating Income $475,000 50,000 Return on Investment 2 47.5% 500% Sales $2,500,000 $2,600,000 $2.700,000 $2,800,000 $2.900,000 $3,000,000 Average Operating Assets $1,000,000 $1.000.000 $1,000,000 $1.000.000 $1,000,000 $1,000,000 2. The ROI increases by 2.5% for each $100,000 increase in sales. This happens because each $100,000 increase in sales brings in an additional profit of $25,000. When this additional profit is divided by the average operating assets of $1.000.000. the result is an increase in the company's ROI of 2.5%. Increase in sales $ 100.000 Contribution margin ratio Increase in contribution margin and net operating income Average operating assets Increase in return on investment N EXERCISE 9-10 Cost-Volume-Profit Analysis and Return on Investment (ROI) (LO9-1] Posters.com is a small internet retailer of high-quality posters. The company has $1.000.000 in operating assets and fixed expenses of $150.00%) 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 (ROI). Net Operating Income Sales ROI $2,500,000 $2,600,000 $2,700,000 $2,800,000 $2,900,000 $3,000,000 $475,000 S2 $ ? $ 2 $ 2 $ ? Average Operating Assets $1,000,000 $1.000.000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 ? 2 ? ? 12 2 2. What happens to the company's return on investment (ROI) as sales increase? Explain