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21 April, 13:25

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:

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  1. 21 April, 14:38
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    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%
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