Question

Craycraft Inc. reported the following results from last year's operations:

	Sales	$12,600,000
	Variable expenses	9,380,000
	Contribution margin	3,220,000
	Fixed expenses	2,716,000
	Net operating income	$504,000
	Average operating assets	$7,000,000

At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics:

	Sales	$560,000
	Contribution margin ratio	50%	of sales
	Fixed expenses	$246,400

Required:

1. A. What was last year's margin? (Round to the nearest 0.1%.)

B- What was last year's turnover? (Round to the nearest 0.01.)

C- What was last year's return on investment (ROI)? (Round to the nearest 0.1%.)

D- If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall margin this year? (Round to the nearest 0.1%.)

E- If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.)

F- If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)

Answer 1

A)last year's margin =Ner operating income /sales

       = 504000/12600000

       = .04 or 4%

B)last year's turnoveR= Sales/ average operating asset

            = 12600000/7000000

           =1.8

c) last year's return on investment = Net operating income / average operating asset

      = 504000/7000000

      = .072 or 7.2%

D)Net operating margin from investment opportunity: [560000*.50]-246400

              = 33600

Overall margin = 504000+33600= 537600

Total sales =560000+12600000=13160000

margin = 537600/13160000= .041 or 4.1%

E)Total asset :7000000+800000=7800000

Overall turnover = sales /asset

                    = 13160000/7800000

                = 1.69

F)ROI = operating income /average asset

          = 537600/7800000

         = .0689 or6.89%