managerial accounting questions, homework help
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Westerville Company reported the following results from last year’s operations: |
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Sales |
$ |
2,000,000 |
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Variable expenses |
640,000 |
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Contribution margin |
1,360,000 |
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Fixed expenses |
860,000 |
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Net operating income |
$ |
500,000 |
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Average operating assets |
$ |
1,250,000 |
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This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics: |
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Sales |
$ |
400,000 |
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Contribution margin ratio |
70 |
% of sales |
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Fixed expenses |
$ |
220,000 |
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The company’s minimum required rate of return is 10%. |
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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)) |
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10-a. |
If Westerville’s chief executive officer will earn a bonus only if her ROI from this year exceeds her ROI from last year, would she pursue the investment opportunity? |
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10-b. |
Would the owners of the company want her to pursue the investment opportunity? |
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11. |
What is last year’s residual income? |
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12. |
What is the residual income of this year’s investment opportunity? |
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13. |
If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? |
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14. |
If Westerville’s 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? |
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15-a. |
Assume that the contribution margin ratio of the investment opportunity was 60% instead of 70%. If Westerville’s 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? |
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15-b. |
Would the owners of the company want her to pursue the investment opportunity? |
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