Question

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?

Answer 1

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.