Question
Posters.com is a small Internet retailer of high-quality posters. The company has $870,000 in operating assets and fixed expenses of $156,000 per year. With this
Posters.com is a small Internet retailer of high-quality posters. The company has $870,000 in operating assets and fixed expenses of $156,000 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 8%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 8 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?
Sales | Net Operating Income | Average Operating Assets | ROI % |
$4,800,000 | $228,000 | $870,000 | |
$4,900,000 | $870,000 | ||
$5,000,000 | $870,000 | ||
$5,100,000 | $870,000 | ||
$5,200,000 | $870,000 | ||
$4,300,000 | $870,000 |
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