EXERCISE 11–5 Cost-Volume-Profit Analysis and Return on Investment (ROI) [LO1]
Images.com is a small Internet retailer of high-quality posters. The company has $800,000 in operating assets and fixed expenses of $160,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5 million per year. The company’s con- tribution margin ratio is 10%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 10 cents.
1. Complete the following table showing the relationship between sales and return on investment (ROI).
2. What happens to the company’s return on investment (ROI) as sales increase? Explain.
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