managerial accounting questions, homework help
[The following information applies to the questions displayed below.]
Westerville Company reported the following results from last year’s operations: |
Sales |
$ |
2,000,000 |
Variable expenses |
640,000 |
|
|
|
|
Contribution margin |
1,360,000 |
|
Fixed expenses |
860,000 |
|
|
|
|
Net operating income |
$ |
500,000 |
|
|
|
Average operating assets |
$ |
1,250,000 |
|
|
|
|
This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics: |
Sales |
$ |
400,000 |
|
Contribution margin ratio |
70 |
% of sales |
|
Fixed expenses |
$ |
220,000 |
|
|
The company’s minimum required rate of return is 10%. |
||||
|
||||
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)) |
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? |
||||
|
|||||
10-b. |
Would the owners of the company want her to pursue the investment opportunity? |
||||
|
11. |
What is last year’s residual income? |
12. |
What is the residual income of this year’s 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 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? |
||||
|
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? |
||||
|
15-b. |
Would the owners of the company want her to pursue the investment opportunity? |
||||
|