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What is minimum selling price that sports equipment should

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Reference no: EM132551967

RETURN ON INVESTMENT VS RESIDUAL INCOME AND TRANSFER PRICING

The Checkers Ltd produces a wide variety of sports equipment. Its newest division, Golf Technology, manufactures and sells a single product-AccuDriver, 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 centre for Sports Equipment:

Total annual fixed costs $26 000 000

Variable cost per AccuDriver $600

Number of AccuDrivers sold each year 170 000 clubs

Average operating assets invested in the division $46 000 000

Required

Question 1. Calculate The Checkers Ltd ROI if the selling price of AccuDrivers is $830 per club.

Question 2. If management requires an ROI of at least 28% from the division, what is the minimum selling price that the Golf Technology Division should charge per AccuDriver club?

Question 3. Assume that The Checkers Ltd judges the performance of its investment centres on the basis of RI rather than ROI. What is the minimum selling price that Sports Equipment should charge per AccuDriver unit to achieve a $4 820 000 residual income if the company's required rate of return is 18%?

Reference no: EM132551967

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