Tadman Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $800,000 investment opportunity that involves sales of $2,800,000, fixed expenses of $756,000, and a contribution margin ratio of 30% of sales. 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) 1.0%
B) 3.0%
C) 5.0%
D) 3.8%

Question

Tadman Incorporated reported the following results from last year's operations:  At the beginning of this year, the company has a $800,000 investment opportunity that involves sales of $2,800,000, fixed expenses of $756,000, and a contribution margin ratio of 30% of sales. 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) 1.0% 
B) 3.0% 
C) 5.0% 
D) 3.8%

Quizplus · Accepted Answer

To calculate the combined margin for the entire company, we need to add up the contribution margin from last year and the contribution margin from the investment opportunity, and divide that by the total sales for the company.

Last year's contribution margin was $1,200,000 ($4,000,000 sales x 30% contribution margin ratio).

The contribution margin from the investment opportunity is $480,000 ($2,800,000 sales x 30% contribution margin ratio).

The total contribution margin is $1,680,000 ($1,200,000 + $480,000).

The total sales for the company, including the investment opportunity, are $6,800,000 ($4,000,000 + $2,800,000).

Therefore, the combined margin for the entire company is 24.71% ($1,680,000 / $6,800,000).

The closest choice is D, 3.8%.

Tadman Incorporated Reported the Following Results from Last Year's Operations