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Calculate the return on investment

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Question - Company A is a retailer targeting a return on sales and a return on investment of 10% each. The accountant compiled the following information:

 

Volume (units)

Unit cost/ price (£)

Total (£)

Sales

555,000

21.45

11,904,750

Purchases

555,000

14.30

7,936,500

Labour

555,000

1.43

793,650

Rent

 

 

2,280,000

Assets

 

 

29,600,000

1. Calculate the break-even point.

2. Calculate the return on sales.

3. Calculate the return on investment.

4. How many units does the company need to sell to reach a return on investment of 10%?

5. How many units does the company need to sell to reach a return on sales of 10%?

6. If the company lowers the price to £21, how much should the sales volume increase in order for the company to reach both a return on sales and a return on investment of at least 10%?

7. Another shop is ready to buy 300,000 units at £19 each. The purchasing costs would be the same but the labour cost for those 300,000 units would be reduced to £1 per unit. Discuss, from both a financial and strategic perspective, whether the company should accept the offer.

8. A leasing contract could reduce the assets owned by the company by 25%. The lease would cost £50,000 per year. Should the company do it? (To answer this question, ignore the suggestions made by employee A and employee B in (f) and (g) above).

Reference no: EM132205509

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