Road Warrior manufactures and sells a model of motorcycle, XR500 In 20X1, it reported the following:

Requirements:

a. What was Road Warrior’s operating income on XR500 in 20X1? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost?

b. Road Warrior is considering increasing the annual spending on advertising for the XR500by $500,000. The company believes that the investment will translate into a 10% increase in unit sales. Should the investment be made? Show your calculations.

c. Road Warrior believes that it will only be able to sell 1,400 units at the price calculated in requirement 1. Management has identified $125,000 in fixed cost that can be eliminated. If Road Warrior wants to maintain a 9%markup on full cost, what is the target variable cost per unit?

Transcribed Image Text:

Units produced and sold 1,500 $8,400,000 Investment Markup percentage on full cost 9% Rate of return on investment 18% Variable cost per unit $8,450 Units produced and sold 1,500 $8,400,000 Investment Markup percentage on full cost 9% Rate of return on investment 18% Variable cost per unit $8,450