Answer:
The correct answer is option (b).
Explanation:
According to the scenario, the given data are as follows:
Sales = $2,240,000
Contribution margin ratio = 50%
Fixed expenses = $1,008,000
So, First we calculate the contribution margin by using following formula:
Contribution margin = Contribution margin ratio × Sales
= 50% × $2,240,000
= $1,120,000
So, we can calculate the margin for this investment by using following formula:
Margin = Net operating income ÷ Sales
Where, Net operating income = Contribution margin - Fixed expenses
= $1,120,000 - $1,008,000
= $112,000
Now by putting the value in the formula, we get
Margin = $112,000 ÷ $2,240,000
= 0.05
= 5%
Hence, the margin for this investment opportunity is 5%.
