Question

Investing $2,000,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 3.0% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,405,682. Assuming similar sales next year, the 3.0% increase in demand will provide $4,902,170 of additional revenue. With the overall contribution margin of 34.1%, after direct costs this revenue will add $1,671,640 to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's levels. How long will it take to achieve payback on the initial $2,000,000 TQM investment, rounded to the nearest month

Answer 1

14 months approx

Step-by-step explanation:

The computation of Payback on the initial in months is shown below:-

Next year sales is increased by 3.0%, the last year sales = 3% × $163,405,682

= $4,902,170.46

Revenue added to the bottom line = 34.1% of increased in demand

= 34.1% × $4,902,170.46

= $1,671,640.13

So,

Payback on the initial in months = (Investment in TQM ÷ Revenue added to the bottom line) × 12

= ($2,000,000 ÷ $1,671,640.13) × 12

= 14 months approx