Exercise 910 CostVolumeProfit Analysis and Return on Investm

Exercise 9-10 Cost-Volume-Profit Analysis and Return on Investment (ROI) LO9-1 Posters.com is a small Internet retailer of high-quality posters. The company has $850,000 in operating assets and fixed expenses of $158,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $4,700,000 per year The company\'s contribution margin ratio is 9%. which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 9 cents. Required: 1. Complete the following table showing the relation between sales and return on investment (ROI) (Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) verage Net Operating ROI Income Operat Assets 4.200,000 220,000 850,000 4,300,000 4.400,000 4,500,000 4,600,000 4.700,000 850,000 $ 850,000 S 850,000 $ 850,000 $ 850,000 2 What happens to the company\'s return on investment (ROI) as sales increase? Increases Decreases

Solution

Req 1. Sales Net Income Average ROI % Operating Assets 4200000 220000 850000 25.88% 4300000 229000 850000 26.94% 4400000 238000 850000 28.00% 4500000 247000 850000 29.06% 4600000 256000 850000 30.12% 4700000 265000 850000 31.18% Note: Net Income: (Sales *CM ratio i.e. 9%) - Fixed expense Note: ROI: Net income / Average Operating assets *100 Req 2: As the sales increases, ROI INCREASES