Question
Westerville Company reported the following results from last years operations: Sales $ 2,200,000 Variable expenses 660,000 Contribution margin 1,540,000 Fixed expenses 1,100,000 Net operating income
| Westerville Company reported the following results from last years operations: |
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| Sales | $ | 2,200,000 |
| Variable expenses |
| 660,000 |
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| Contribution margin |
| 1,540,000 |
| Fixed expenses |
| 1,100,000 |
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| Net operating income | $ | 440,000 |
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| Average operating assets | $ | 1,375,000 |
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| This year, the company has a $275,000 investment opportunity with the following cost and revenue characteristics: |
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| Sales | $ | 440,000 |
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| Contribution margin ratio |
| 60 | % of sales |
| Fixed expenses | $ | 220,000 |
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| The companys minimum required rate of return is 15%. | |
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| 1. | What is last years margin? |
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| 2. | What is last years turnover? (Round your answer to 1 decimal place.) |
| 3. | What is last years return on investment (ROI)? |
| 4. | What is the margin related to this years investment opportunity? |
| 5. | What is the turnover related to this years investment opportunity? (Round your answer to 1 decimal place.) |
| 6. | What is the ROI related to this years investment opportunity? |
| 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)) |
| 8. | If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.) |
| 9. | If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)) |
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| 10-b. |
| Would the owners of the company want her to pursue the investment opportunity? Y or n |
| 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? |
| 14. | If Westervilles chief executive officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment opportunity? Y or n |
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The Practitioners Blueprint To Construction Auditing
Authors: Ron Risner
1st Edition
0894137263, 978-0894137266
