A)Defacto manufactures and sells baseballs. Assume production equals sales. Budget data for Aug. 2021 are as follows:

Current assets

$400,000

Long-term assets

600,000

Total assets

$1,000,000

Production output

200,000 baseballs per month

Target Return on Investment (ROI)

18%

Fixed costs

$400,000 per month

Variable cost

$4 per baseball

Required:

1.Compute the minimum selling price per baseball necessary to achieve the target ROI of 18%.

2.Separate the target ROI into its two components Margin and Turnover.

3.Compute the Residual Income (RI) of the Defacto for Aug. 2021, using the selling price from requirement 1. Defacto uses a required rate of return of 12% on totalassets when computing RI.

4.In addition to his salary, Ahmed, the manager ofDefacto, receives 3% of the monthly RIas a bonus. Compute Ahmad's bonus.

B)Define the following terms: Differential cost and Opportunity cost.