The Managers of Herwhno Want to Introduce a New Product

question 54

Multiple Choice

The managers of Herwhno want to introduce a new product line. The financial performance of the company for the most recent year is given below: $$\begin{array} { | l | l | } \hline \text { Sales } & £ 63,300,000 \\\hline \text { Less variable costs } & £ 36,720,000 \\\hline \text { Contribution } & £ 26,580,000 \\\hline \text { Less fued expenses } & £ 22,720,000 \\\hline \text { Net profit } & £ 3,860,000 \\\hline \text { Divisional capital employed } & \$ 23,200,000 \\\hline\end{array}$$
The company estimates that the required return on investment should be a minimum of 12%.
Details of new product line
The sales manager estimates that sales for the new product will be 420,000 units per annum if the selling price is £5.20 per unit. Variable costs are estimated to be £2.86 per unit. Fixed costs will increase by £900,000.
A budget of £2,000,000 has been agreed for investment in new machinery.
- Calculate the Return on Investment before the new investment is accepted

• A)16.64%.
• B)12.9%.
• C)22.8%.
• D)14.5%.

Recognize the benefits and risks associated with self-managed teams in the organizational context.

Understand the structure and utility of business unit profit and loss statements for organizational performance evaluation.

Evaluate key financial and non-financial performance measures for various centers (cost, profit, investment, and revenue centers).

Understand the principles and applications of transfer pricing, including cost-plus and market-price policies.

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Definitions:

Cardiovascular Disease

A class of diseases that involve the heart or blood vessels (arteries, capillaries, and veins) and can lead to severe health complications such as heart attack or stroke.

Cardiovascular Disease

A class of diseases that involve the heart or blood vessels, such as coronary artery disease, hypertension, and stroke, often related to atherosclerosis.

Diets

Controlled or regulated food and drink intake planned for nutritional, weight management, or medical reasons.

Hypertension

Sustained, above normal, mean arterial blood pressure.