Asked by justin motley on May 15, 2024
Verified
Largo Company recorded for the past year, sales of $750,000 and had average operatin? assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%?
A) 2.00%.
B) 9.99%.
C) 7.50%.
D) 15.00%.
Variable Expenses
Costs that vary in direct proportion with the level of production or sales volume, such as raw materials and sales commissions.
Traceable Fixed Expenses
Fixed costs that are directly associated with a specific department or product, and can be directly traced to it.
Minimum Required Rate Of Return
The lowest acceptable return on an investment, determined by an investor's or company's risk tolerance.
- Estimate the return on investment (ROI), residual income, and margin based on financial data.
Verified Answer
GC
Gilbert CastellanosMay 18, 2024
Final Answer :
C
Explanation :
The margin needed to achieve an ROI of 15% can be calculated using the formula: ROI = Margin * Turnover. To find the margin, we rearrange the formula to Margin = ROI / Turnover. The turnover is calculated as Sales / Average Operating Assets. For Largo Company, Turnover = $750,000 / $375,000 = 2. To achieve an ROI of 15%, Margin = 15% / 2 = 7.50%.
Learning Objectives
- Estimate the return on investment (ROI), residual income, and margin based on financial data.