Rhein Manufacturing recorded operating data for its auto accessories division for the year. Sales $750,000 Contribution margin 150,000 Total direct fixed costs 90,000 Average total operating assets 400,000 How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant

Return On Investment = 22.5%

Explanation:

Given:

Sales = $750,000

Contribution margin = $150,000

Total direct fixed costs = $90,000

Average total operating assets = $400,000

Find:

Return On Investment if contribution margin increase by $30,000

Computation:

Net operating income = Contribution margin - Total direct fixed costs

Net operating income = [$150,000 + $30,000] - $90,000

Net operating income = $90,000

Return On Investment = [Net operating income / Net operating assets]100

Return On Investment = [90,000 / 400,000]100

Return On Investment = [0.225]100

Return On Investment = 22.5%