Pricing and return on investment. Hardy, Inc., assembles motorcycles and uses long-run

(defined as three to five years) average demand to set the budgeted production level and costs for pricing. Prices are then adjusted only for large changes in assembly wage rates or direct materials prices. You are given the following data:

Direct materials, assembly wages, and other variable costs Fixed costs Target return on investment Normal utilization of capacity (average output)

Investment (total assets)

$ 1,584 per unit

$ 360,000,000 per year 20%

1,000,000 units

$1,080,000,000 2.

3.

Required 1. What operating income percentage on revenues is needed to attain the target return on investment of 20%? What is the selling price per unit?

Using the selling price per unit calculated in requirement 1, what rate ofreturn on invest¬

ment will be earned if Hardy assembles and sells 1,500,000 units? 500,000 units?

The company has a management bonus plan based on yearly division performance.

^-Assurpe that Hardy assembled and sold 1,000,000, 1,500,000, and 500,000 units in three successive years. Each of three people served as division manager for one year before being killed in an automobile accident. As the principal heir of the third manager, commeht on the bonus plan.