Deborah Lewis, general manager of the Northwest Division of Berkshire Enterprises, has significant authority over pricing decisions as well as programs that involve cost reduction/control. The data that follow relate to upcoming divisional operations:
Average invested capital: $15,000,000
Annual fixed costs: $3,900,000
Variable cost per unit: $80
Number of units expected to be sold: 120,000
Required:
A. Top management will promote Lewis if she can earn a 14% return on investment for the year. What unit selling price should she establish to get her promotion?
B. Independent of part "A," assume the unit selling price is $132 and that Berkshire has a 16% imputed interest charge. Top management will promote Lewis to corporate headquarters if her division can generate $200,000 of residual income. If Lewis desires to move to corporate, what must the division do to the amount of annual fixed costs incurred? Show your calculations.

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The Answer of Deborah Lewis, general manager of the Northwest Division of Berkshire Enterprises, has significant authority over pricing decisions as well as programs that involve cost reduction/control. The data that follow relate to upcoming divisional operations:
Average invested capital: $15,000,000
Annual fixed costs: $3,900,000
Variable cost per unit: $80
Number of units expected to be sold: 120,000
Required:
A. Top management will promote Lewis if she can earn a 14% return on investment for the year. What unit selling price should she establish to get her promotion?
B. Independent of part "A," assume the unit selling price is $132 and that Berkshire has a 16% imputed interest charge. Top management will promote Lewis to corporate headquarters if her division can generate $200,000 of residual income. If Lewis desires to move to corporate, what must the division do to the amount of annual fixed costs incurred? Show your calculations.

Deborah Lewis, General Manager of the Northwest Division of Berkshire