The Coffee Division of Canadian Products Is Planning the Operating

question 132

Essay

The Coffee Division of Canadian Products is planning the operating budget for next year.Average total assets of $1,500,000 will be used during the year and unit selling prices are expected to average $100 each.Variable costs of the division are budgeted at $400,000 while fixed costs are set at $250,000.The company's required rate of return is 18%.Required:
a.Compute the volume necessary to achieve a 20% ROI.
b.The division manager receives a bonus of 50% of the residual income.What is his anticipated bonus for next year assuming he achieves the targeted operating income in part a.and the required return is based on 18%?

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Definitions:

Liabilities

Financial obligations or debts owed by a business to others, which must be paid back.

Merchandise Inventory

Merchandise inventory includes goods that a company intends to sell in the ordinary course of business, calculated at the cost of acquiring the goods.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Service Company

A business that provides intangible products or services to customers rather than physical goods.