After filling in the blanks, comment on the relative performance of these companies as thoroughly as the data permit.

Pricing, Rate of Return, and Measuring Efficiency A large automobile company follows a pricing policy whereby “normal” or “standard” activity is used as a base for pricing. That is, prices are set on the basis of long-run annual-volume predictions. They are then rarely changed, except for notable changes in wage rates or material prices.

You are given the following data:

Materials, wages, and other variable costs $1,320 per unit Fixed overhead $300,000,000 per year Desired rate of return on invested capital 20%

Normal volume 1,000,000 units Invested capital

. What net-income percentage based on dollar sales is needed to attain the desired rate of return?
. What rate of return on invested capital will be earned at sales volumes of 1,500,000 and 500,000 units, respectively?
. The company has a sizable management bonus plan based on yearly divisional performance. Assume that the volume was 1,000,000, 1,500,000, and 500,000 units, respectively, in three successive years. Each of three men has served as division manager for one year before being killed in an automobile accident.
As the major heir of the third manager, comment on the bonus plan, lop1