Images.com is a small Internet retailer of high-quality posters. The company has
ID: 2460387 • 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. Complete the following table showing the relationship between sales and return on investment (ROI): (Round your percentage answers to 2 decimal places.) What happens to the company's return on investment (ROI) as sales increase? (Round your answer to 2 decimal places.)Explanation / Answer
Sales
Net Operating Income
Avg Operating Assets
ROI
4,800,000
230,000
830,000
27.71
4,900,000
238,000
830,000
28.67
5,000,000
246,000
830,000
29.64
5,100,000
254,000
830,000
30.60
5,200,000
262,000
830,000
31.57
5,300,000
270,000
830,000
32.53
ROI = Net Operating Income / Avg Operating Assets
2) ROI increase as the sales increases
Sales
Net Operating Income
Avg Operating Assets
ROI
4,800,000
230,000
830,000
27.71
4,900,000
238,000
830,000
28.67
5,000,000
246,000
830,000
29.64
5,100,000
254,000
830,000
30.60
5,200,000
262,000
830,000
31.57
5,300,000
270,000
830,000
32.53