Images.com is a small Internet retailer of high-quality posters. The company has
ID: 2460143 • Letter: I
Question
Images.com is a small Internet retailer of high-quality posters. The company has $830, 000 in operating assets and fixed expenses of $154, 000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5.3 million per year. The company's contribution margin ratio is 8%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 8 cents. Required: 1. Complete the following table showing the relationship between sales and return on investment (ROI): 2. What happens to the company's return on investment (ROI) as sales increase?Explanation / Answer
1 Sales Net Operating Income Average Operating Asset ROI % $4,800,000.00 $230,000.00 $830,000.00 28% $4,900,000.00 $238,000.00 $830,000.00 29% $5,000,000.00 $246,000.00 $830,000.00 30% $5,100,000.00 $254,000.00 $830,000.00 31% $5,200,000.00 $262,000.00 $830,000.00 32% $5,300,000.00 $270,000.00 $830,000.00 33% 2 Sales is increased by 1%