Question: The New Athletics Company produces a wide variety of outdoor

The New Athletics Company produces a wide variety of outdoor sports equipment. Its newest division, Golf Technology, manufactures and sells a single product— Accu Driver, 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 New Athletics:
Total annual fixed costs.............. $ 28,000,000
Variable cost per AccuDriver ............. $ 350
Number of AccuDrivers sold each year........ 160,000
Average operating assets invested in the division ..... $ 44,000,000

1. Compute Golf Technology’s ROI if the selling price of AccuDrivers is $ 570 per club.
2. If management requires an ROI of at least 30% from the division, what is the minimum selling price that the Golf Technology Division should charge per AccuDriver club?
3. Assume that New Athletics judges the performance of its investment centers on the basis of RI rather than ROI. What is the minimum selling price that Golf Technology should charge per AccuDriver if the company’s required rate of return is 22%?

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  • CreatedJanuary 15, 2015
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