Quesnon 1 (of 4) 10 00 points Free Riders Inc. is considering adding a scooter t

Question

Quesnon 1 (of 4) 10 00 points Free Riders Inc. is considering adding a scooter to its motorcycle line-up Management will negotiate the price of the scooter with its manufacturer Management of Free Riders believes the scooters can be sold to its customers for $4,000 each. At that price, annual sales of the scooters should be 200 units. If the scoofers are added to Free Riders product ines, the company will have to invest $200,000 in inventories and special war cost of selling the scooters will be $1,000 per unt ehouse fiatures. The vaniable Required: 1. If Free Riders requres a 20%ROL what is the maximum amount the company would be willing to pay the manufacturer for the scooters? 2. Not available in Connect Referenc eBook & Resources

Explanation / Answer

ROI = Net Profit/Total Investment i.e, 20% = Net Profit/$200000 i.e, Net Profit = $200000*20% = $40,000 Total Net profit = Sales - Purchase cost of the Scooter - Variable Selling Expense Purchase cost = Sales - Variable Selling Exp - Net Profit = 200units*$4000 - 200 units*$1000 - $40000 =$8,00,000 - $2,00,000 -$40,000 =$5,60,000 The maximum Amount Co. shall be willing to pay is $5,60,000 i., $2800 per scooter

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