Images.com is a small Internet retailer of high-quality posters. The company has
ID: 2376581 • Letter: I
Question
Images.com is a small Internet retailer of high-quality posters. The company has $820,000 in operating assets and fixed expenses of $153,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5.4 million per year. The company%u2019s contribution margin ratio is 9%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 9 cents.
Complete the following table showing the relationship between sales and return on investment (ROI). (Round your percentage answers to 2 decimal places. Omit the "$" and "%" signs in your response.)
What happens to the company's return on investment (ROI) as sales increase? (Round your answer to 2 decimal places. Omit the "%" sign in your response)
Images.com is a small Internet retailer of high-quality posters. The company has $820,000 in operating assets and fixed expenses of $153,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5.4 million per year. The company%u2019s contribution margin ratio is 9%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 9 cents.
Explanation / Answer
A
Sales A
B
TOTAL
Fixed
C
D
Net operating
E
Average
Operating
Assets
ROI
d/e
$4,900,000
441000
$153,000
$288,000
$820,000
35.12%
$5,000,000
450000
$153,000
297000
$820,000
36.21%
$5,100,000
459000
$153,000
306000
$820,000
37.31%
$5,200,000
468000
$153,000
315000
$820,000
38.41%
$5,300,000
477000
$153,000
1. 324000
$820,000
39.51%
$5,400,000
486000
$153,000
333000
$820,000
40.60%
What happens to the company's return on investment (ROI) as sales increase> Explain.
With Increase in Sales & Fixed expenses constant, the Operating Income Increases. So same Op assets are being used to generate more & more Operating income. As RoI = Net OI/Avge Op Assets, ROI also increases.
So we can say that with increasing Sales & a constant Fixed expenses and Avge Op assets, ROI will increase.
A
Sales A
B
TOTAL
Fixed
C
D
Net operating
E
Average
Operating
Assets
ROI
d/e
$4,900,000
441000
$153,000
$288,000
$820,000
35.12%
$5,000,000
450000
$153,000
297000
$820,000
36.21%
$5,100,000
459000
$153,000
306000
$820,000
37.31%
$5,200,000
468000
$153,000
315000
$820,000
38.41%
$5,300,000
477000
$153,000
1. 324000
$820,000
39.51%
$5,400,000
486000
$153,000
333000
$820,000
40.60%