The Quality Athletics Company produces a wide variety of outdoor sports equipmen

Question

The Quality Athletics Company produces a wide variety of outdoor sports equipment. Its newest division, Golf Technology, manufactures and sells a single product-AccuDriver, a golf club that uses global positioning satellite technology to improve the accuracy of golfers' shots. The demand for AccuDriver is relatively insensitive to price changes. The following data are available for Golf Technology, which is an investment center for Quality Athletics EEB (Click the icon to view the data.) Requirements 1. Compute Golf Technology's ROl if the selling price of AccuDnivers is $830 per club. 2. If management requires an ROI of at least 22% from the division, what is the minimum selling price that the Golf Technology Data Table Division should charge per AccuDriver club? 3. Assume that Quality Athletics judges the performance of its investment centers on the basis of RI rather than ROI. What is the 28,000,000 Total annual fixed costs Variable cost per AccuDriver Number of AccuDrivers sold each year m nimum selling pnce that Golf Technology should charge per Accu river if the company's required rate of return is 20%? Requirement 1. Compute Golf Technology's ROl if the selling price of AccuDrivers is $830 per club. Determine the formula used to calculate ROI, then calculate the ROI for Golf Technology. (Enter the ROl as a percentage, rounded to 600 145,000 55,000,000 Average operating assets invested in the division ROI Print Done

Explanation / Answer

1.

ROI = Net Income / Average Operating Assets

= 5,350,000 / 55,000,000 = 9.72%

2. If minimum ROI required is 22% , then net income = 55,000,000 * 22% = 12,100,000

Sales = Net Income + variable Costs + Fixed Costs

Let the selling price be x

$145,000 x = 12,100,000 + 87,000,000 + 28,000,000

x = $876.55 or 876 (rounded off)

3. Capital Charge = $55,000,000 * 20% = 11,000,000

Operating Income = $145,000 x - 87,000,000 - 28,000,000

Residual Income = Operating Income - Capital Charge

0 = $145,000 x - 87,000,000 - 28,000,000- 11,000,000

x = $ 868.97 or 869 (rounded off)

Sales
[$830 * 145,000] 120,350,000 Less: Variable Costs
[$600*145,000] (87,000,000) Fixed Costs (28,000,000) Net Income 5,350,000

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