The New Athletics New Athletics Company produces a wide variety of outdoor sport
ID: 2566801 • Letter: T
Question
The New Athletics New Athletics Company produces a wide variety of outdoor sports equipment. Its newest division, Golf Technology, manufactures and sells a single productlon dash—AccuDriver,
a golf club that uses global positioning satellite technology to improve the accuracy of golfers' shots. The demand for AccuDriver is relatively insensitive to price changes. The following data are available for Golf Technology, which is an investment center for New Athletics.
Total annual fixed costs
$28,000,000
Variable cost per AccuDriver
$350
Number of AccuDrivers sold each year
160,000
Average operating assets invested in the division
$44,000,000
Requirements
1.
Compute Golf Technology's ROI if the selling price of AccuDrivers is $ 570$
per club.
2.
If management requires an ROI of at least 30% from the division, what is the minimum selling price that the Golf Technology Division should charge per AccuDriver club?
3.
Assume that New Athletics New Athletics judges the performance of its investment centers on the basis of RI
than ROI. What is the minimum selling price that Golf Technology should charge per AccuDriver if the company's required rate of return is
22%?
Total annual fixed costs
$28,000,000
Variable cost per AccuDriver
$350
Number of AccuDrivers sold each year
160,000
Average operating assets invested in the division
$44,000,000
Explanation / Answer
1 Sales (160000*570) 91200000 Variable cost ( 160000*350) 56000000 Contribution margin 35200000 Fixed cost 28000000 operating income 7200000 ROI = (net income / operating assets) (7200000/44000000)*100 16.36363636 2) Net operating income (44000000*30% 13200000 Fixed cost 28000000 contribution margin 41200000 add:Variable cost 56000000 Sales 97200000 Selling price (97200000/160000) 607.5 3 Net operating income (44000000*22% 9680000 Fixed cost 28000000 contribution margin 37680000 add:Variable cost 13200000 Sales 50880000 Selling price (50880000/160000) 318
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