managerial accounting questions, homework help

[The following information applies to the questions
displayed below.]

Westerville Company
reported the following results from last year’s operations:

 

 Sales

$

2,000,000 

 Variable expenses

640,000
 

 Contribution margin

1,360,000
 

 Fixed expenses

860,000 

 Net operating income

$

 500,000
 

 Average operating assets

$

1,250,000
 

 

This year, the company
has a $250,000 investment opportunity with the following cost and revenue
characteristics:

 

 Sales

$

400,000

 Contribution margin ratio

70

 % of sales

 Fixed expenses

$

220,000

The company’s minimum required rate of return is 10%.
 

 

3.

Assume that Cane
expects to produce and sell 94,000 Alphas during the current year. One of
Cane’s sales representatives has found a new customer that is willing to
buy 24,000 additional Alphas for a price of $136 per unit. If Cane accepts
the customer’s offer, how much will its profits increase or decrease?

4.

Assume that Cane
expects to produce and sell 104,000 Betas during the current year. One of
Cane’s sales representatives has found a new customer that is willing to
buy 3,000 additional Betas for a price of $62 per unit. If Cane accepts the
customer’s offer, how much will its profits increase or decrease?

7.

If the company pursues
the investment opportunity and otherwise performs the same as last year, what
margin will it earn this year? (Round your
percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3))

10-a.

If Westerville’s chief
executive officer will earn a bonus only if her ROI from this year exceeds
her ROI from last year, would she pursue the investment opportunity?

No

Yes

10-b.

Would the owners of the
company want her to pursue the investment opportunity?

No

Yes

11.

What is last year’s residual income?

12.

What is the residual
income of this year’s investment opportunity?

13.

If the company pursues
the investment opportunity and otherwise performs the same as last year, what
residual income will it earn this year?

14.

If Westerville’s chief
executive officer will earn a bonus only if her residual income from this
year exceeds her residual income from last year, would she pursue the
investment opportunity?

No

Yes

15-a.

Assume that the contribution margin ratio
of the investment opportunity was 60% instead of 70%. If Westerville’s Chief
Executive Officer will earn a bonus only if her residual income from this
year exceeds her residual income from last year, would she pursue the
investment opportunity?

Yes

No

 

15-b.

Would the owners of the
company want her to pursue the investment opportunity?

No

Yes

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