The Division A of Standard Products is planning its 2019 operating budget. Average operating assets of $1,500,000 will be used during in the division during the year and per-unit selling prices are expected to average $100. Variable costs of the division are budgeted at $400,000, while fixed costs are set at $250,000. The company's required rate of return for purposes of calculating residual income (RI) is 18%.

Required:
1. Compute the sales volume (in units) necessary for Division A to achieve a 20% ROI in 2019.
2. The division manager receives a bonus of 50% of residual income (RI). What is her anticipated bonus for 2019 for the division manager, assuming she achieves the 20% ROI target specified in part (1)?

Question

The Division A of Standard Products is planning its 2019 operating budget. Average operating assets of $1,500,000 will be used during in the division during the year and per-unit selling prices are expected to average $100. Variable costs of the division are budgeted at $400,000, while fixed costs are set at $250,000. The company's required rate of return for purposes of calculating residual income (RI) is 18%.

Required:
1. Compute the sales volume (in units) necessary for Division A to achieve a 20% ROI in 2019.
2. The division manager receives a bonus of 50% of residual income (RI). What is her anticipated bonus for 2019 for the division manager, assuming she achieves the 20% ROI target specified in part (1)?

Quizplus · Accepted Answer

The Answer of The Division A of Standard Products is planning its 2019 operating budget. Average operating assets of $1,500,000 will be used during in the division during the year and per-unit selling prices are expected to average $100. Variable costs of the division are budgeted at $400,000, while fixed costs are set at $250,000. The company's required rate of return for purposes of calculating residual income (RI) is 18%.

Required:
1. Compute the sales volume (in units) necessary for Division A to achieve a 20% ROI in 2019.
2. The division manager receives a bonus of 50% of residual income (RI). What is her anticipated bonus for 2019 for the division manager, assuming she achieves the 20% ROI target specified in part (1)?

The Division a of Standard Products Is Planning Its 2019