Question

Naples, Inc. recorded operating data for its shoe division for the year. Sales $750,000 Contribution margin 135,000 Total fixed costs 90,000 Average total operating assets 300,000 How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

Answer 1

Answer:

25%

Explanation:

New contribution margin = Old contribution margin + Increase

                                          = 135,000 + 30,000

                                          = 165,000

Net Income = Contribution margin - Total fixed expense

                    = $165,000 - $90,000

                    = $75,000

ROI = Net income ÷ Average operating assets

       = 75,000 ÷ 300,000

       = 25%