The following data are available for the South Division of Redride Products,Inc.and the single product it makes:
$\begin{array}{|l|r|}
\hline \text { Unit Selling Price } & \$ 20 \
\hline \text { Variable Cost per Unit } & \$ 12 \
\hline \text { Annual Fixed Costs } & \$ 280,000 \
\hline \text { Average Operating Assets } & \$ 1,500,000 \
\hline
\end{array}$
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

Quizplus · Accepted Answer

To achieve an ROI (Return on Investment) of 16% on average operating assets of $1,500,000, South Division needs to generate $240,000 in profit ($1,500,000 * 16% = $240,000). The contribution margin per unit is $8 ($20 - $12). To cover the annual fixed costs of $280,000 and generate an additional $240,000 in profit, South needs to generate a total of $520,000 ($280,000 + $240,000). Dividing this total required contribution by the contribution margin per unit ($520,000 / $8) gives 65,000 units.

The Following Data Are Available for the South Division of Redride