Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 690,000 Contribution margin 810,000 Fixed expenses 435,000 Net operating income $ 375,000 Average operating assets $ 1,250,000 At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics: Sales $ 420,000 Contribution margin ratio 70 % of sales Fixed expenses $ 252,000 The company’s minimum required rate of return is 10%. 1. 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? & Would the owners of the company want her to pursue the investment opportunity? yes or no 2.What is the residual income of this year’s investment opportunity? 3. What is last year’s residual income?
Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 690,000 Contribution margin 810,000 Fixed expenses 435,000 Net operating income $ 375,000 Average operating assets $ 1,250,000 At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics: Sales $ 420,000 Contribution margin ratio 70 % of sales Fixed expenses $ 252,000 The company’s minimum required rate of return is 10%. 1. 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? & Would the owners of the company want her to pursue the investment opportunity? yes or no 2.What is the residual income of this year’s investment opportunity? 3. What is last year’s residual income?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 22E: Ellerson Company provided the following information for the last calendar year: During the year,...
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Westerville Company reported the following results from last year’s operations:
Sales | $ 1,500,000 |
---|---|
Variable expenses | 690,000 |
Contribution margin | 810,000 |
Fixed expenses | 435,000 |
Net operating income | $ 375,000 |
Average operating assets | $ 1,250,000 |
At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics:
Sales | $ 420,000 | |
---|---|---|
Contribution margin ratio | 70 | % of sales |
Fixed expenses | $ 252,000 |
The company’s minimum required
1. If Westerville’s chief executive officer will earn a bonus only if her
2.What is the residual income of this year’s investment opportunity?
3. What is last year’s residual income?
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