ACCT 505 Solutions to Weekly Problems - Week 6

Problem 11-14 (30 minutes)

1.

Present

New Line

Total

(1)

Sales

21,000,000

9,000,000

30,000,000

(2)

Net operating income

1,680,000

630,000

*

2,310,000

(3)

Operating assets

5,250,000

3,000,000

8,250,000

(4)

Margin (2) (1)

8.0%

7.0%

7.7%

(5)

Turnover (1) (3)

(6)

ROI (4) (5)

32%

21%

28%

*

Sales

9,000,000

Variable expenses (65% 9,000,000)

5,850,000

Contribution margin

3,150,000

Fixed expenses

2,520,000

Net operating income

630,000

2.Fred Halloway will be inclined to reject the new product line because accepting it would reduce his division's overall rate of return.

3.The new product line promises an ROI of 21%, whereas the company's overall ROI last year was only...