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Vance Inc Requires All of Its Divisions to Maintain a Return

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Essay

Vance Inc. requires all of its divisions to maintain a return on investment (ROI) of at least 45%. The manager of one of the divisions expects the division's net operating income to be $400,000 and its sales to be $2,000,000.
Required: Calculate the division's required average operating assets in order to achieve the minimum ROI.


Definitions:

Assembly-Line Plant

A manufacturing facility where products are assembled in a sequential manner along a conveyor belt or line.

Average Variable Cost (AVC)

The cost per unit produced that varies, found by dividing the total variable expenses by the amount of output generated.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one additional unit of a good or service changes as production increases.

Average Total Cost (ATC)

The total cost of production divided by the total quantity produced, representing the per unit cost.

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