Question

The fruit division of grove company had sales of $1,800,000, average operating assets of $720,000, contribution margin of $324,000, and controllable fixed costs of $216,000. if management has a plan to improve the contribution margin by $72,000 and if fixed costs don’t change, what will be the fruit division’s return on investment?

Answer 1

The fruit division of Grove Company currently has a return on investment (ROI) of 45%. If management plans to improve the contribution margin by $72,000, the new ROI would be 55%.

Step-by-step explanation:

To calculate the return on investment (ROI) for the fruit division of Grove Company, we can use the formula: ROI = (Contribution Margin / Average Operating Assets) x 100%. Given that the contribution margin is $324,000 and the average operating assets are $720,000, we can plug in these values to find the ROI: ROI = ($324,000 / $720,000) x 100% = 45%.

If management plans to improve the contribution margin by $72,000, the new contribution margin would be $324,000 + $72,000 = $396,000. Since the fixed costs don't change, the ROI would still be calculated using the original average operating assets: ROI = ($396,000 / $720,000) x 100% = 55%.