Rhein Manufacturing recorded operating data for its auto accessories division for the year. $$\begin{array} { l r }
\text { Sales } & \$ 750,000 \
\text { Contribution margin } & 150,000 \
\text { Total direct fixed costs } & 90,000 \
\text { Average total operating assets } & 400,000
\end{array}$$ How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

Question

Rhein Manufacturing recorded operating data for its auto accessories division for the year. $$\begin{array} { l r } 
\text { Sales } & \$ 750,000 \
\text { Contribution margin } & 150,000 \
\text { Total direct fixed costs } & 90,000 \
\text { Average total operating assets } & 400,000
\end{array}$$ How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

Quizplus · Accepted Answer

The ROI is calculated as (Net Operating Income / Average Operating Assets). The improved contribution margin is $150,000 + $30,000 = $180,000. Net Operating Income is $180,000 - $90,000 = $90,000. ROI = $90,000 / $400,000 = 22.5%.

Rhein Manufacturing Recorded Operating Data for Its Auto Accessories Division