Problem 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?
Problem 2) NRG Company records reveal the following
Division X
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
Division Y
Sales price of finished product $45
Variable costs:
Division X (1 component @ $24) $24
Division Y
Assembly $9
Packaging $4
Total $13
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?