Response to the following problem:
Cost-Volume-Profit Analysis and Return on Investment (ROl) posters.com is a small Internet retailer of high-quality posters. The company has $1,000,000 in operating assets and fixed expenses of $150,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $3,000,000 per year. The company's contribution margin ratio is 25%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 25 cents.
Required:
1. Complete the following table showing the relation between sales and return on investment (ROl).
|
Sales
|
Net Operating
Income
|
Average
Operating Assets
|
ROI
|
|
$2,500,000
|
$475,000
|
$1,000,000
|
?
|
|
$2,600,000
|
$ ?
|
51,000,000
|
?
|
|
$2,700,000
|
$ ?
|
$1,000,000
|
?
|
|
$2,800,000
|
$ ?
|
$1,000,000
|
?
|
|
$2,900,000
|
$ ?
|
$1,000,000
|
?
|
|
$3,000.000
|
$ ?
|
S1.000.000
|
?
|
2. What happens to the company's return on investment (ROl) as sales increase?Explain.