Deborah Lewis,general Manager of the Northwest Division of Berkshire Enterprises,has

question 9

Essay

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.A 14% return on investment will require the Division to produce income of $2,100,000 ($15,000,000 * 14%).If X = selling price,then:
120,000X - (120,000 * $80)- $3,900,000 = $2,100,000
120,000X - $9,600,000 - $3,900,000 = $2,100,000
120,000X = $15,600,000
X = $130
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.If X = fixed cost,then:
[($132 - $80)* 120,000] X - ($15,000,000 * 16%)= $200,000
$6,240,000 - X - $2,400,000 = $200,000
X = $3,640,000
To achieve her promotion,Lewis must reduce fixed costs by $260,000 ($3,900,000 - $3,640,000).
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.

Understand how to calculate the expenses associated with the production of goods.

Apply combinatorial methods and probability in practical scenarios.

Analyze profit maximization strategies through various pricing models.

Understand the process of finding zeros of polynomial functions and their application in economics.

---

Definitions:

Systematic Sampling

Sampling by selecting every nth unit from a population.

Snowball Sampling

A non-probability sampling technique where existing study subjects recruit future subjects from among their acquaintances.

Nonprobability Sampling

A sampling technique where the samples are gathered in a process that does not give all the individuals in the population equal chances of being selected.

Lotteries

Games of chance where winners are selected by drawing lots, often used as a means of raising funds.