9 Youns Inc reported the following results from last years o

9) Youns Inc. reported the following results from last year\'s operations: Sales $ 10,500,000 Variable expenses 6,610,000 Contribution margin 3,890,000 Fixed expenses 3,260,000 Net operating income $ 630,000 The company\'s average operating assets were $5,000,000. At the beginning of this year, the company has a $1,400,000 investment opportunity that involves sales of $2,800,000, fixed expenses of $616,000, and a contribution margin ratio of 30% of sales. If the company pursues the investment opportunity and otherwise performs the same as last year, the combined turnover for the entire company will be closest to: A) 9.50 B) 1.64 C) 2.66 D) 2.08

Solution

Answer is D. 2.08 Explanation Current Proposed Total Sales 10,500,000 2,800,000 13,300,000 less: Variable cost 6,610,000 1960000 8,570,000 Contribution margin 3,890,000 840,000 4,730,000 Less: Fixed cost 3260000 616000 3,876,000 Net income 630,000 224,000 854,000 Average operating assets 5,000,000 1,400,000 6,400,000 Assets turnover: Total sales revenue / Average Investment 13300,000 /6400,000 = 2.08 times