Craycraft Inc. reported the following results from last year\'s operations: Sale
ID: 2515393 • Letter: C
Question
Craycraft Inc. reported the following results from last year's operations:
Sales
$12,600,000
Variable expenses
9,380,000
Contribution margin
3,220,000
Fixed expenses
2,716,000
Net operating income
$504,000
Average operating assets
$7,000,000
At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics:
Sales
$560,000
Contribution margin ratio
50%
of sales
Fixed expenses
$246,400
Required:
1. A. What was last year's margin? (Round to the nearest 0.1%.)
B- What was last year's turnover? (Round to the nearest 0.01.)
C- What was last year's return on investment (ROI)? (Round to the nearest 0.1%.)
D- If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall margin this year? (Round to the nearest 0.1%.)
E- If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.)
F- If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
Sales
$12,600,000
Variable expenses
9,380,000
Contribution margin
3,220,000
Fixed expenses
2,716,000
Net operating income
$504,000
Average operating assets
$7,000,000
Explanation / Answer
A)last year's margin =Ner operating income /sales
= 504000/12600000
= .04 or 4%
B)last year's turnoveR= Sales/ average operating asset
= 12600000/7000000
=1.8
c) last year's return on investment = Net operating income / average operating asset
= 504000/7000000
= .072 or 7.2%
D)Net operating margin from investment opportunity: [560000*.50]-246400
= 33600
Overall margin = 504000+33600= 537600
Total sales =560000+12600000=13160000
margin = 537600/13160000= .041 or 4.1%
E)Total asset :7000000+800000=7800000
Overall turnover = sales /asset
= 13160000/7800000
= 1.69
F)ROI = operating income /average asset
= 537600/7800000
= .0689 or6.89%