The following data are available for the South Division of Redride Products,Inc.and the single product it makes: $\begin{array}{lr}
\text { Unit Selling Price } & \$ 20 \
\text { Variable Cost per Unit } & \$ 12 \
\text { Annual Fixed Costs } & \$ 280,000 \
\text { Average Operating Assets } & \$ 1.500,000
\end{array}$
How many units must South sell each year to have an ROI of 16%?
A) 52,000 units.
B) 65,000 units.
C) 240,000 units.
D) 1,300,000 units.

Question

The following data are available for the South Division of Redride Products,Inc.and the single product it makes: $\begin{array}{lr}
\text { Unit Selling Price } & \$ 20 \
\text { Variable Cost per Unit } & \$ 12 \
\text { Annual Fixed Costs } & \$ 280,000 \
\text { Average Operating Assets } & \$ 1.500,000
\end{array}$ 
How many units must South sell each year to have an ROI of 16%?
A) 52,000 units.
B) 65,000 units.
C) 240,000 units.
D) 1,300,000 units.

Quizplus · Accepted Answer

ROI (Return on Investment) = Profit / Average Operating Assets

Let's calculate the profit per unit first:

Profit per unit = Selling price per unit - Variable cost per unit
Profit per unit = $20 - $12
Profit per unit = $8

Now, we can calculate the required profit to achieve 16% ROI:

ROI = Profit / Average Operating Assets
0.16 = Profit / $1,500,000
Profit = $240,000

Finally, we can calculate the number of units required to achieve the desired profit:

Number of units = (Fixed costs + Profit) / Profit per unit
Number of units = ($280,000 + $240,000) / $8
Number of units = 65,000 units

Therefore, the answer is B) 65,000 units.

The Following Data Are Available for the South Division of Redride