The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
-If Axle sells 16,000 units per year, the return on investment should be:
A) 12%
B) 15%
C) 16%
D) 18%

Question

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: 
-If Axle sells 16,000 units per year, the return on investment should be:
A) 12% 
B) 15% 
C) 16% 
D) 18%

Quizplus · Accepted Answer

The formula for return on investment (ROI) is:
ROI = (Profit / Investment) x 100%
Profit = Total revenue - Total cost
Investment = Total assets used to produce and sell the units

Using the data provided, we can calculate the profit and investment as follows:

Total revenue = Selling price x Units sold = $160 x 16,000 = $2,560,000
Total cost = Variable cost per unit x Units sold + Fixed cost = $80 x 16,000 + $880,000 = $2,000,000
Profit = $2,560,000 - $2,000,000 = $560,000
Investment = Total assets used to produce and sell the units = $3,500,000

Substituting these values into the ROI formula, we get:

ROI = ($560,000 / $3,500,000) x 100% = 16%

Therefore, the best choice is C) with an ROI of 16%.

The Axle Division of LaBate Company Makes and Sells Only