ABC Company reported the following information for 2019: Sales .................

Question

 ABC Company reported the following information for 2019:    Sales ...............................   14,000 units   Margin ..............................     25%   Variable cost per unit ..............    $8.80   Average operating assets ............   $550,000   Return on investment ................     14%   Minimum required rate of return .....      9%  Management of ABC Company is beginning to budget for 2020 and would like answers to some what-if scenarios.  Calculate the number of units ABC Company needed to sell in 2019 in order for its residual income to be 204% larger than what was reported.

Explanation / Answer

1 OPERATING ASSETS VALUE 550000 2 MINIMUM REQUIRED RETE 9% 3 MINIMUM MARGIN (1*2) 49500 4 RETURN ON INVESTMENT 14% 5 MARGIN(1*4) 77000 6 RESIDUL INCOME (5-3) 27500 7 SALES (5/0.25) NOTE 308000 8 SALES PRICE (7/14000) 22 9 REQUIRE RESIDUAL INCOME(6*204%) 56100 10 REQUIRED MARGIN (9+3) 105600 11 REQUIRED SALES ($) (10/0.25) 422400 REQUIRED SALES UNITS (11/8) 19200 NOTE: MARGIN=SALES*RATE OF MARGIN    MARGIN=SALES*25% SALES=MARGIN/0.25

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