Chaucer Ltd

question 99

Essay

Chaucer Ltd.has current assets of $450,000 and capital assets of $630,000.Its budgeted production volume for the next fiscal year is 200,000 units.Fixed costs are projected at $400,000 and variable unit costs for the one product produced total $5/unit.The company defines ROI as Operating Income/Total Assets and its required rate of return is 14%.Required:
a.What selling price should Chaucer charge for its product if it wishes to achieve a 25% ROI? What is the operating income at this price?
b.The general manager for Chaucer receives a bonus equal to 12% of the residual income for the period.Calculate the amount of the bonus assuming the selling price calculated in part a).
c.Prepare a brief memo to the President of Chaucer outlining the advantages and disadvantages of ROI and Residual Income.Include your recommendations for the most appropriate method for calculating the bonus.

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Definitions:

Marketing Data

Information collected from various sources that highlights trends, patterns, and other insights crucial for making marketing decisions.

Data Storehouse

A central repository for storing and managing large amounts of data from various sources, optimized for analysis and reporting.

Data Repository

A data repository is a central location in which data is stored and managed, typically used to aggregate, organize, and make data accessible for analysis and reporting.

Sensitivity Analysis

A method used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.