Question: ABC Inc. is planning the operating budget for next year. Average total assets of $1,700,000 will be used during the year and unit selling prices

ABC Inc. is planning the operating budget for next year. Average total assets of $1,700,000 will be used during the year and unit selling prices are expected to average $250 each. Variable costs of the division are budgeted at $600,000 while fixed costs are set at $450,000. The company's required rate of return is 10%.

Required:

1) Compute the volume necessary to achieve a 15% ROI.

2) The division manager receives a bonus of 50% of the residual income. What is his anticipated bonus for next year assuming he achieves the targeted operating income in part 1 and the required return is based on 10%?

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