Sales and Average Operating Assets for Company P and Company

question 65

Multiple Choice

Sales and average operating assets for Company P and Company Q are given below:

$\begin{array}{lccc}& \underline { \text { Sales Average } } & \text { Operating Assets } \\\text { Company P } & \$ 20,000 & \$ 8,000 \\\text { Company Q } & \$ 50,000 & \$ 10,000\end{array}$

What is the margin that each company (Company P and Company Q,respectively) will have to earn in order to generate a return on investment of 20%?

• A) 2.5% and 5%.
• B) 8% and 4%.
• C) 12% and 16%.
• D) 50% and 100%.

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Definitions:

Overhead Cost

General business expenses that relate to the operation of a company but cannot be directly tied to a specific product or service.

Product Costs

The costs incurred to create a product, encompassing direct materials, direct labor, and manufacturing overhead.

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities, maintenance, and manager salaries.

Product Margins

The difference between the selling price of a product and the cost to produce it, reflecting the profitability of each product sold.