Naples, Inc. recorded operating data for its shoe division for the year. $$\begin{array} { l r }
\text { Sales } & \$ 750,000 \
\text { Contribution margin } & 135,000 \
\text { Total fixed costs } & 90,000 \
\text { Average total operating assets } & 300,000
\end{array}$$ 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

Naples, Inc. recorded operating data for its shoe division for the year. $$\begin{array} { l r } 
\text { Sales } & \$ 750,000 \
\text { Contribution margin } & 135,000 \
\text { Total fixed costs } & 90,000 \
\text { Average total operating assets } & 300,000
\end{array}$$ 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 (Return on Investment) can be calculated by dividing the net operating income by the average total operating assets. With the improvement, the contribution margin would increase to $165,000 ($135,000 + $30,000). Since fixed costs are held constant at $90,000, the net operating income becomes $75,000 ($165,000 - $90,000). Therefore, ROI = ($75,000 / $300,000) * 100% = 25%.

Naples, Inc How Much Is ROI for the Year If Management Is