The following data are available for the South Division of Manhattan 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) 240,000.
B) 1,300,000.
C) 52,000.
D) 65,000.

Question

The following data are available for the South Division of Manhattan 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) 240,000.
B) 1,300,000.
C) 52,000.
D) 65,000.

Quizplus · Accepted Answer

To achieve an ROI of 16%, the division needs a profit of 16% of $1,500,000, which is $240,000. The contribution margin per unit is $20 - $12 = $8. To cover the fixed costs and achieve the desired profit, the total contribution margin needed is $280,000 + $240,000 = $520,000. Dividing $520,000 by the contribution margin per unit ($8) gives 65,000 units.

The Following Data Are Available for the South Division of Manhattan