Question

Waterway Industries recorded operating data for its auto accessories division for the year.

Sales $870000
Contribution margin 320000
Total direct fixed costs 90000
Average total operating assets 500000
How much is ROI for the year if management is able to identify a way to improve the contribution margin by $40000, assuming fixed costs are held constant?

Answer 1

the return on investment is 54%

Step-by-step explanation:

The computation of the return on investment is given below:

= Net operating income ÷ average operating assets

= ($320,000 + $40,000 - $90,000) ÷ $500,000

= $270,000 ÷ $500,000

= 54%

hence, the return on investment is 54%

We simply applied the above formula so that the correct amount could come