The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
-Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year?
A) 14,500
B) 16,750
C) 18,250
D) 19,500

Question

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: 
-Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year?
A) 14,500 
B) 16,750 
C) 18,250 
D) 19,500

Quizplus · Accepted Answer

Axle should sell 16,750 units per year to achieve an annual residual income of $45,000. This is because the residual income is calculated as the difference between the operating income and the desired return on investment, which is 12% of the invested capital. The operating income is $200,000 and the invested capital is $1,250,000. Therefore, the desired return on investment is $150,000. The residual income is then calculated as $200,000 - $150,000 = $45,000. To achieve this residual income, Axle needs to sell 16,750 units per year.

The Axle Division of LaBate Company Makes and Sells Only