The Tea Division of Canadian Products Is Planning the Operating

Essay

The Tea Division of Canadian Products is planning the operating budget for next year. Average total assets of $1,700,000 will be used during the year and unit selling prices are expected to average $250 each. Variable costs of the division are budgeted at $600,000 while fixed costs are set at $450,000. The company's required rate of return is 10%.
Required:
a. Compute the volume necessary to achieve a 15% 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 10%?