Images.com is a small Internet retailer of high-quality posters. The company has
ID: 2460628 • Letter: I
Question
Images.com is a small Internet retailer of high-quality posters. The company has $760,000 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 $4.6 million per year. The company’s contribution margin ratio is 11%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 11 cents. Required: 1. Complete the following table showing the relationship between sales and return on investment (ROI): (Round your percentage answers to 2 decimal places.) Sales Net Operating Income Average Operating Assets ROI $ 4,100,000 $ 298,000 $ 760,000 % $ 4,200,000 $ $ 760,000 % $ 4,300,000 $ $ 760,000 % $ 4,400,000 $ $ 760,000 % $ 4,500,000 $ $ 760,000 % $ 4,600,000 $ $ 760,000 % 2. What happens to the company's return on investment (ROI) as sales increase? (Round your answer to 2 decimal places.) ROI % rev: 04_28_2015_QC_CS-14556
Explanation / Answer
Sales Net_Operating_Income Average_Operating_Assets ROI $4,100,000.00 $298,000.00 $760,000.00 39.21% $4,200,000.00 $309,000.00 $760,000.00 40.66% $4,300,000.00 $320,000.00 $760,000.00 42.11% $4,400,000.00 $331,000.00 $760,000.00 43.55% $4,500,000.00 $342,000.00 $760,000.00 45.00% $4,600,000.00 $353,000.00 $760,000.00 46.45%