(Question and Answer): Hello, given this information I need help finding the project's accounting rate of return.

Pcclcuon ond sales volume 00.000 unns 120000 rts Toan Urit Unl $ 90 Drect materials Total varlatble manufacuring Comribution margn Flxd meufecturing coats s 37 42 5 1.250030 350000 Net opereting Income Required Information 0.40 points 1-a. Coplete the alkowing table showing the Itals (Enter all answers in whole dollars t (no a 30,000 Units and Sales Volurne 120,000 Units Per Init Par Unir lotal 90「S 7,200,000|$ 90| 1000000 Sales Revenue Varistle Coets Diract Matadal Direct Labor 25 riable Manufacturing Overhead Tatal Varlahla Manufacthuring Costs Contribution Margin Ficed Manutacturing Costa 10 53 2,960,000| 1,250,u0C 1,710,00d 42「 ら040,000 2 350,000 2690,000 st

Hello, given this information I need help finding the project’s accounting rate of return.

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Pcclcuon ond sales volume 00.000 unns 120000 rts Toan Urit Unl $ 90 Drect materials Total varlatble manufacuring Comribution margn Flxd meufecturing coats s 37 42 5 1.250030 350000 Net opereting Income Required Information 0.40 points 1-a. Coplete the alkowing table showing the Itals (Enter all answers in whole dollars t (no a 30,000 Units and Sales Volurne 120,000 Units Per Init Par Unir lotal 90「S 7,200,000|$ 90| 1000000 Sales Revenue Varistle Coets Diract Matadal Direct Labor 25 riable Manufacturing Overhead Tatal Varlahla Manufacthuring Costs Contribution Margin Ficed Manutacturing Costa 10 53 2,960,000| 1,250,u0C 1,710,00d 42「 ら040,000 2 350,000 2690,000 st

Expert Answer

 

Solution:

Calculation of the Accounting Rate of Return:

Current (No Automation) Proposed (Automation)
Production Sales and Volumes 80,000 Units 120,000 Units
Per Unit Total Per Unit Total
Sales Revenue $90 $7,200,000 $90 $10,800,000
Variable Costs:
Direct Materials $18 $18
Direct Labor $25 $20
Variable Manufacturing Overhead $10 $10
Total Variable Manufacturing Costs $53 $48
Contribution Margin $37 $2,960,000 $42 $5,040,000
Fixed Manufacturing Costs $1,250,000 $2,350,000
Net Operating Profit $1,710,000 $2,690,000

emph{Accounting Rate of Return} = frac{emph{Net Operating Income}}{emph{Initial Investment}}

Net Operating Income = $2,690,000

Initial Investment = $15,000,000

emph{Accounting Rate of Return} = frac{$2,690,000}{$15,000,000}

emph{Accounting Rate of Return} = 17.93%

Therefore, the Accounting Rate of Return is 17.93%.

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