Chiodini Incorporated has a $900,000 investment opportunity that involves sales of $2,430,000, fixed expenses of $1,044,900, and a contribution margin ratio of 50% of sales. The return on investment (ROI) for this year's investment opportunity considered alone is closest to:

Question

Quizplus · Accepted Answer

To calculate ROI, we need to divide the net profit by the cost of investment and multiply by 100.

First, let's calculate the variable expenses using the contribution margin ratio:

Contribution Margin = Sales - Variable Expenses

0.5(Sales) = Sales - Variable Expenses

0.5(Sales) = $1,215,000

Sales = $2,430,000

Variable Expenses = $2,430,000 - $1,215,000 = $1,215,000

Now, let's calculate the net profit:

Net Profit = Sales - Variable Expenses - Fixed Expenses

Net Profit = $2,430,000 - $1,215,000 - $1,044,900 = $169,100

Finally, let's calculate ROI:

ROI = (Net Profit / Cost of Investment) x 100

ROI = ($169,100 / $900,000) x 100

ROI = 18.79%, which is closest to 18.9%. Therefore, the answer is B.

Chiodini Incorporated Has a $900,000 Investment Opportunity That Involves Sales