Reference: 12-03
The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: $$\begin{array} { | l | l | }
\hline \text { Unit selling price } & \$ 50 \
\hline \text { Unit variable cost } & \$ 30 \
\hline \text { Total fixed costs } & \$ 200,000 \
\hline \text { Average operating assets } & \$ 750,000 \
\hline \text { Minimum required rate of return } & 12 \% \
\hline
\end{array}$$
-Suppose the manager of the Axle Division desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year?
A)19,500.
B)18,250.
C)16,750.
D)14,500.

Question

Reference: 12-03
The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: $$\begin{array} { | l | l | } 
\hline \text { Unit selling price } & \$ 50 \
\hline \text { Unit variable cost } & \$ 30 \
\hline \text { Total fixed costs } & \$ 200,000 \
\hline \text { Average operating assets } & \$ 750,000 \
\hline \text { Minimum required rate of return } & 12 \% \
\hline
\end{array}$$
-Suppose the manager of the Axle Division desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year?
A)19,500.
B)18,250.
C)16,750.
D)14,500.

Quizplus · Accepted Answer

To achieve a residual income of $45,000, first calculate the target operating income. The minimum required return on $750,000 of operating assets is $750,000 * 12% = $90,000. Adding the desired residual income of $45,000 to this gives a total required operating income of $135,000. The contribution margin per unit is $50 - $30 = $20. The break-even point in units is calculated by dividing the total fixed costs plus the required operating income by the contribution margin per unit: ($200,000 + $135,000) / $20 = 16,750 units.

Reference: 12-03 the Axle Division of LaBate Company Makes and Sells

Reference: 12-03
the Axle Division of LaBate Company Makes and Sells