Westerville Company reported the following results from last years operations:

Sales	$	1,000,000
Variable expenses		300,000
Contribution margin		700,000
Fixed expenses		500,000
Net operating income	$	200,000
Average operating assets	$	625,000

This year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:

Sales	$	200,000
Contribution margin ratio		60	% of sales
Fixed expenses	$	90,000

The companys minimum required rate of return is 15%.

7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3))

11.	What is last years residual income?

12.	What is the residual income of this years investment opportunity?

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

Diego Company manufactures one product that is sold for $80 per unit. The following information pertains to the companys first year of operations in which it produced 40,000 units and sold 35,000 units.

Variable costs per unit:
Manufacturing:
Direct materials	$	24
Direct labour	$	14
Variable manufacturing overhead	$	2
Variable selling and administrative	$	4
Fixed costs per year:
Fixed manufacturing overhead	$	800,000
Fixed selling and administrative expenses	$	496,000

1. What is the companys break-even point in unit sales?

10. What would have been the companys absorption costing net operating income (loss) if it had produced and sold 35,000 units?