234k views
1 vote
The Foundational 15 [LO10-1, LO10-2] [The following information applies to the questions displayed below.] Westerville Company reported the following results from last year’s operations: Sales $ 2,300,000 Variable expenses 670,000 Contribution margin 1,630,000 Fixed expenses 1,170,000 Net operating income $ 460,000 Average operating assets $ 1,437,500 At the beginning of this year, the company has a $287,500 investment opportunity with the following cost and revenue characteristics: Sales $ 460,000 Contribution margin ratio 50 % of sales Fixed expenses $ 161,000 The company’s minimum required rate of return is 15%. Foundational 10-4 4. What is the margin related to this year’s investment opportunity?

1 Answer

4 votes

Final answer:

The margin for this year's investment opportunity is $230,000, which is calculated by multiplying the contribution margin ratio of 50% by the total sales of $460,000.

Step-by-step explanation:

The margin relating to this year's investment opportunity can be determined by the contribution margin, which is calculated as the contribution margin ratio multiplied by sales. Given a contribution margin ratio of 50% and sales of $460,000, we calculate the margin as follows:

Margin = Contribution Margin Ratio × Sales = 50% × $460,000 = $230,000.

This is the amount by which the sales exceed the variable expenses, and it contributes to covering the fixed expenses and generating profit.

User FreddieH
by
8.4k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.