Use the information below to answer the following question(s).Patton Company budgeted the following costs for the production of its one and only product, bells, for the next fiscal year:
Patton has a target profit of $750,000.
-If total invested capital is $3,000,000, what is the company's target rate of return on investment?

Question

Use the information below to answer the following question(s).Patton Company budgeted the following costs for the production of its one and only product, bells, for the next fiscal year:
  Patton has a target profit of $750,000.
-If total invested capital is $3,000,000, what is the company's target rate of return on investment?

Quizplus · Accepted Answer

First, we need to calculate the total budgeted cost for the production of bells, which is $8,000,000 ($2,000,000 direct materials + $4,000,000 direct labor + $2,000,000 manufacturing overhead).

Next, we need to calculate the company's total revenue needed to achieve the target profit of $750,000, which is $8,750,000 ($750,000 + $8,000,000).

Finally, we can calculate the target rate of return on investment by dividing the target profit by the total invested capital: 
Target rate of return on investment = $750,000 / $3,000,000 = 0.25 or 25%.

Therefore, the answer is C) 25%.

Use the Information Below to Answer the Following Question(s)