The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
$\begin{array}{|l|r|}
\hline \text { Unit Selling Price } & \$ 50 \
\hline \text { Unit Variable Cost } & \$ 30 \
\hline \text { Total Fixed Costs } & \$ 200,000 \
\hline \text { Average Operating Assets } & \$ 750,000 \
\hline \text { Minimum Required Rate of Return } & 12 \% \
\hline
\end{array}$
-Suppose the manager of Axle desires a return on investment of 22%.In order to achieve this goal,Axle must sell how many units per year?
A) 14,500 units.
B) 16,750 units.
C) 18,250 units.
D) 19,500 units.

Question

Quizplus · Accepted Answer

To achieve a 22% return on investment, Axle needs a net operating income of 22% of $750,000, which is $165,000. The contribution margin per unit is $20 ($50 - $30). To cover fixed costs and achieve the desired income, Axle must sell ($200,000 + $165,000) / $20 = 18,250 units.

The Axle Division of LaBate Company Makes and Sells Only