The following data are available for the South Division of Manhattan Products, Inc. and the single product it makes:
$\begin{array}{lrr}
\text { Unit selling price } &\$20\
\text { Variable cost per unit } &\$12\
\text { Annual fixed costs} &\$280,000\
\text { Average operating assets } &\$1,500,000\
\end{array}$

How many units must South sell each year to have an ROI of 16%?
A) 240,000.
B) 1,300,000.
C) 52,000.
D) 65,000.

Question

The following data are available for the South Division of Manhattan Products, Inc. and the single product it makes:
$\begin{array}{lrr}
  \text { Unit selling price } &\$20\
 \text { Variable cost per unit } &\$12\
 \text {  Annual fixed costs} &\$280,000\
 \text { Average operating assets } &\$1,500,000\
\end{array}$

How many units must South sell each year to have an ROI of 16%?
A) 240,000.
B) 1,300,000.
C) 52,000.
D) 65,000.

Quizplus · Accepted Answer

To achieve an ROI of 16%, the required profit is 16% of $1,500,000, which is $240,000. The contribution margin per unit is $20 - $12 = $8. To cover fixed costs and achieve the required profit, South must sell enough units to cover $280,000 (fixed costs) + $240,000 (required profit) = $520,000. Dividing $520,000 by the contribution margin of $8 per unit gives 65,000 units.

The Following Data Are Available for the South Division of Manhattan