Question

Sales $9,600,000 Variable Expenses 6,810,000 Contribution Margin 2,790,000 Fixed Expenses 1,926,000 Net Operating Income $ 864,000 Average Operating Assets $4,000,000 At the beginning of this year, the company has a $1,200,000 investment opportunity with the following characteristics: Sales $4,200,000 Fixed Expenses $ 960,000 Contribution Margin Ratio 30% If the company pursues the investment opportunity and otherwise performs the same as last year, the combined margin for the entire company will be closest to:

Answer 1

Answer:

8.43%

Explanation:

The computation of combined margin is shown below:-

For computing the combined margin for the entire company first we need to compute the combined net operating income and combined sales which is here below:-

Combined net operating income = Existing operating income + Operating income from new investment opportunity

= $864,000 + ($4,200,000 × 30% - $960,000)

= $864,000 + ($1,260,000 - $960,000)

= $864,000 + $300,000

= $1,164,000

Combined sales = $9,600,000 + $4,200,000

= $13,800,000

Combined margin for entire company = Combined net operating income ÷ Combined sales

= $1,164,000 ÷ $13,800,000

= 8.43%