Question

Investing $2,000,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 3.0% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,508,343. Assuming similar sales next year, the 3.0% increase in demand will provide $4,905,250 of additional revenue. With the overall contribution margin of 34.1%, after direct costs this revenue will add $1,672,690 to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's levels. How long will it take to achieve payback on the initial $2,000,000 TQM investment, rounded to the nearest month?

TQM investment will not have a significant financial impact
14 months
5 months
10 months

Answer 1

Answer:

14 Months

Explanation:

Last year’s sales = $163,508,343

As per the given data next year sales is increased by 3.0%.  

= 0.03 * $163,508,343 = $4,905,250.29 ~= $4,905,250  

Revenue added to the bottom line = 34.1% of increased demand

= 0.341 * $4,905,250 = $1,672,690.25~= $1,672,690

TQM investment = $2,000,000

Payback = (Investment in TQM / Revenue added to the bottom line) * 12

= ($2,000,000 / $1,672,690) * 12 = 14.34 ~= 14 Months

Hope this helps!