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?
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?
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 14EB: Company A has current sales of $4,000,000 and a 45% contribution margin. Its fixed costs are...
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Question
Westerville Company reported the following results from last year’s operations:
| Sales | $ 1,800,000 |
|---|---|
| Variable expenses | 740,000 |
| Contribution margin | 1,060,000 |
| Fixed expenses | 700,000 |
| Net operating income | $ 360,000 |
| Average operating assets | $ 1,200,000 |
At the beginning of this year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics:
| Sales | $ 600,000 | |
|---|---|---|
| Contribution margin ratio | 60 | % of sales |
| Fixed expenses | $ 288,000 |
The company’s minimum required
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?
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