Westerville Company reported the following results from last year’s operations: Sales $ 2,300,000 Variable expenses 670,000 Contribution margin 1,630,000 Fixed expenses 1,170,000 Net operating income $ 460,000 Average operating assets $ 1,437,500 At the beginning of...

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Westerville Company reported the following results from lastyear’s operations:
Sales $ 2,300,000
Variableexpenses 670,000
Contribution margin 1,630,000
Fixedexpenses 1,170,000
Netoperating income $ 460,000
Averageoperating assets $ 1,437,500
At the beginning of this year, the company has a $287,500investment opportunity with the following cost and revenuecharacteristics:
Sales $ 460,000
Contribution margin ratio 50 % of sales
Fixedexpenses $ 161,000
The company’s minimum required rate of return is 15%.
12a. What is the residual income of this year’s investmentopportunity?
12b. If the company pursues the investment opportunity andotherwise performs the same as last year, what residual income willit earn this year?

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Answer 12a Calculation of residual income of investment opportunity Sales 46000000 Less Variable cost 50 23000000 Contribution Margin 23000000 Less Fixed See Answer

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Westerville Company reported the following results from lastyear’s operations:Sales$2,300,000Variableexpenses670,000Contribution margin1,630,000Fixedexpenses1,170,000Netoperating income$460,000Averageoperating assets$1,437,500At the beginning of this year, the company has a $287,500investment opportunity with the following cost and revenuecharacteristics:Sales$460,000Contribution margin ratio50% of salesFixedexpenses$161,000The company’s minimum required rate of return is 15%.12a. What is the residual income of this year’s investmentopportunity?12b. If the company pursues the investment opportunity andotherwise performs the same as last year, what residual income willit earn this year?


Sales	$	2,300,000
Variableexpenses		670,000
Contribution margin		1,630,000
Fixedexpenses		1,170,000
Netoperating income	$	460,000
Averageoperating assets	$	1,437,500


Sales	$	460,000
Contribution margin ratio		50	% of sales
Fixedexpenses	$	161,000