Dingo Division's Operating Results Include: Controllable Margin of $150000 Sales

question 127

Multiple Choice

Dingo Division's operating results include: controllable margin of $150000 sales totaling $1200000 and average operating assets of $500000. Dingo is considering a project with sales of $100000 expenses of $86000 and an investment of average operating assets of $200000. Dingo's required rate of return is 9%. Should Dingo accept this project?

• A) Yes ROI will drop by 6.6% which is still above the minimum required rate of return.
• B) No the return is less than the required rate of 9%.
• C) Yes ROI still exceeds the cost of capital.
• D) No ROI will decrease to 7%.

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Definitions:

Total Fixed Cost

An expenditure that does not change with the level of production or sales over a short period.

Average Variable Costs

The costs of labor, material, and other inputs that change with the level of production or sales volume.

Average Fixed Costs

The sum of all fixed production costs divided by the number of units produced.

Total Costs

The sum of all expenses a firm incurs in the production of goods or services, including both fixed and variable costs.