Yellow Hat Company has a sales margin of 10%, a target rate of return of 2.6%, and capital turnover of 2.6. Its operating income is $58,000. The sales in dollars for Yellow Hat Company may be closest to
A)$580,000.
B)$22,308.
C)$5800.
D)$150,800.

Question

Quizplus · Accepted Answer

First, we can use the formula for return on investment (ROI) to find the amount of capital invested in the company:

ROI = sales margin x capital turnover 
2.6% = 10% x 2.6 
2.6% = 0.26

Capital turnover = sales / capital invested 
0.26 = sales / capital invested

Therefore, capital invested = sales / 0.26

Next, we can use the formula for operating income to find the amount of sales revenue:

operating income = sales x sales margin 
$58,000 = sales x 10% 
$58,000 = 0.1 x sales

Therefore, sales = $58,000 / 0.1 = $580,000.

So the closest option is A, $580,000.

Yellow Hat Company Has a Sales Margin of 10%, a Target