ME10 Problem: ROI & Residual Income- Bate Inc.

ME10 Problem: ROI & Residual Income- Bate Inc.

One of the divisions of Bate Inc. sells widgets. This division has experienced the followingaverage annual results based on the last three years:Total fixed costs $680,000Variable costs $16.50 / unitAverage sales per year 50,000 unitsAverage assets employed $1,565,000Average ROI 15%Required:1. What selling price must be charged to ensure the division maintains its average ROI of 15%?2. Assume that residual income is used to measure performance and that the minimum rateof return required is 20%. What is the minimum selling price required to meet theminimum rate of return using residual income?