Question

The following data are available for the Northwestern Division of Dempsey, Inc. and the single product it makes. Average operating assets $3,000,000

Annual fixed costs 560,000
Unit selling price 40
Variable cost per unit 24
How many units must the division sell each year to achieve an ROI of 16%?

Answer 1

65,000 units

Step-by-step explanation:

Let the number of units be sold = x

Operating Income= Sales- Variable cost – Fixed Cost

Operating Income = 40x - 24x - 560,000

Operating Income = 16x - 560,000

Return on Investment = Operating Income / Net Operating Assets

16% = (16x - 560,000 )/ 3,000,000

480,000 = 16x - 560,000

16x = 480,000 + 560,000

16x = 1,040,000

x = 65,000 units