Question

The New Athletics Company produces a wide variety of outdoor sports equipment. Its newest division, Golf Technology, manufactures and sells a single product-AccuDriver, a golf club that uses global positioning satellite technology to improve the accuracy of golfers' shots. The demand for AccuDriver is relatively insensitive to price changes. The following data are available for Golf Technology, which is an investment center for New Athletics: 3: (Click the icon to view the data.) Requirements 1. Compute Golf Technology's ROI if the selling price of AccuDrivers is $570 per club. 2. If management requires an ROI of at least 30% from the division, what is the minimum selling price that the Golf Technology Division should charge per AccuDriver club? 3. Assume that New Athletics judges the performance of its investment centers on the basis of RI rather than ROI. What is the minimum selling price that Golf Technology should charge per AccuDriver if the company's required rate of return is 22%? Requirement 1. Compute Golf Technology's ROI if the selling price of AccuDrivers is $570 per club. Determine the formula used to calculate ROI, then calculate the ROI for Golf Technology. (Enter the ROI as a percentage, rounded to the nearest hundredth percent, X.XX%.) = ROI

Answer 1

1)		Amount $
	Sales (160000*$570)	91,200,000
	Less: Variable cost ( 160000*350)	(56,000,000)
	Contribution margin	35,200,000
	Less: Fixed cost	(28,000,000)
	operating income	72,00,000
	ROI = (net income / operating assets)*100
	(72,00,000/44,000,000)*100	16.36%
2)	Net operating income (44,000,000*30%	13,200,000
	Fixed cost	28,000,000
	Variable cost	56,000,000
	Sales Sales = Net Income + variable Costs + Fixed Costs	97,200,000
	Selling price (97,200,000/160,000)=607.5	$608 (rounded off)
3)	Net operating income (44,000,000*22%	96,80,000
	Fixed cost	28,000,000
	Variable cost	13,200,000
	Sales Sales = Net Income + variable Costs + Fixed Costs	50,880,000
	Selling price (50880000/160000)	$318