I need help on two accounting problems.
1) Kholer Company's revenues are $300 on invested capital of $240. Expenses are currently 84% of sales. If Kholer Company can reduce its expenses to 75% of sales, what will the return on investment be?
2) NRG Company records reveal the following
Market price of finished component to outsiders $32
Variable costs per component $24
Contribution margin per component $8
Total contribution for 20,000 components $160,000
Sales price of finished product $45
Division X (1 component @ $24) $24
Contribution margin per unit $5
Total contribution for 20,000 units $100,000
The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier. If Division X is not at full capacity, what is the lowest transfer price at which it would be willing to sell to Division Y?
1. Return on Investment = Net Operating Income/Invested Capital
Net Operating Income = Revenue - Expenses
Revenue = $300
Expenses = 75% of ...
The solution explains the calculation of return on investment and transfer price.