Question

Cirone Inc. reported the following results from last year's operations: 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 Contribution margin ratio 30 % of sales Fixed expenses $ 966,000 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: 8.39%

Explanation:

Margin = Net Income/ Sales

Net income for the company including the new investment:

= 864,000 + (Sales * Contribution margin ratio - Fixed costs)

= 864,000 + (4,200,000 * 30% - 966,000)

= $1,158,000

The combined sales for the company is:

= 9,600,000 + 4,200,000

= $13,800,000

Combined margin:

= 1,158,000 / 13,800,000

= 8.39%