Minar Inc. reported the following results from last year's operations: $\begin{array}{lrr}
\text { Sales } & \$ 5,700,000 \
\text { Variable expenses } & 3,510,000 \
\text { Contribution margin } & 2,190,000 \
\text { Fixed expenses } & 1,734,000 \
\text { Net operating income } & \$ 456,000 \
\text { Average operating assets } & \$ \quad 3,000,000
\end{array}$ At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics:
$\begin{array}{lc}
\text { Sales } & \$ 1,530,000 \
\text { Contribution margin ratio } & 60 \% \text { of sales } \
\text { Fixed expenses } & \$ 810,900
\end{array}$ If the company pursues the investment opportunity and otherwise performs the same as last year, the combined margin for the entire company will be closest to:
A) 9.9%
B) 1.9%
C) 7.8%
D) 6.3%

Question

Minar Inc. reported the following results from last year's operations: $\begin{array}{lrr}
\text { Sales } & \$ 5,700,000 \
\text { Variable expenses } & 3,510,000 \
\text { Contribution margin } & 2,190,000 \
\text { Fixed expenses } & 1,734,000 \
\text { Net operating income } & \$  456,000 \
\text { Average operating assets } & \$ \quad 3,000,000
\end{array}$ At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics:
$\begin{array}{lc}
\text { Sales } & \$ 1,530,000 \
\text { Contribution margin ratio } & 60 \% \text { of sales } \
\text { Fixed expenses } & \$ 810,900
\end{array}$ If the company pursues the investment opportunity and otherwise performs the same as last year, the combined margin for the entire company will be closest to:
A) 9.9%
B) 1.9%
C) 7.8%
D) 6.3%

Quizplus · Accepted Answer

To find the combined margin, we first calculate the new net operating income with the investment opportunity. The contribution margin from the investment is 60% of $1,530,000, which equals $918,000. Subtracting the fixed expenses of $810,900 from this gives a net operating income from the investment of $107,100. Adding this to the original net operating income of $456,000 gives a total net operating income of $563,100. The combined margin is then the total net operating income divided by the total sales ($5,700,000 original sales + $1,530,000 new sales = $7,230,000), which equals $563,100 / $7,230,000, or approximately 7.8%.

Minar Inc Reported the Following Results from Last Year's Operations