Westerville Company reported the following results from last year’s operations:   Sales $ 1,500,000 Variable expenses 500,000 Contribution margin 1,000,000 Fixed expenses 700,000 Net operating income $ 300,000 Average operating assets $ 1,000,000   At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics:   Sales $ 300,000   Contribution margin ratio 60 % of sales Fixed expenses $ 132,000     The company’s minimum required rate of return is 10%.    What is the residual income of this year’s investment opportunity?  What is last year’s residual income?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Westerville Company reported the following results from last year’s operations:

 

Sales $ 1,500,000
Variable expenses 500,000
Contribution margin 1,000,000
Fixed expenses 700,000
Net operating income $ 300,000
Average operating assets $ 1,000,000

 

At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics:

 

Sales $ 300,000  
Contribution margin ratio 60 % of sales
Fixed expenses $ 132,000  

 

The company’s minimum required rate of return is 10%.

 

 What is the residual income of this year’s investment opportunity?

 What is last year’s residual income?

 
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