Benoit Limited manufactures electronics equipment including drones for recreational use. The Drone Division has average operating

assets of $$2,000,000.$ The drones have a selling price of $$250$ each, variable costs are $$150$ per drone, and fixed costs total $$500,000$

per year. The company's desired annual return on average operating assets is $15\%.$

Required:

$1-$a$.$ Last year the company sold $10,000$ drones. What was the residual income?

Residual income

$1-$b$.$ What was ROI?

ROI

$\%$

$2-$a$.$ Assume next year the company wants to increase residual income by $$100,000.$ How many units must be sold to achieve that

goal assuming there are no changes to selling price, variable costs, fixed costs, or average operating assets?

Units sold to achieve the goal

units

$2-$b$.$ What will ROI be at that level of sales?

ROI

$\%$

At what level of unit sales will the Drone Division just meet its target of a $15\%$ return on average operating assets?

Level of unit sales

$4-$a$.$ Assume that sales of the existing drone model will continue at $10,000$ units per year but a new model could be introduced that

would require capital expenditures of $$400,000.$ Management expects that $1,000$ units of the new drone could be sold a

price of $$325$ per drone and variable costs of $$200$ per drone. Annual fixed costs of $$50,000$ would be incurred for the new model.

Would the manager of the Drone Division likely accept or reject the proposal to develop the new drone model?

New drone model

$4-$b$.$ From the company's perspective, should the new drone model be introduced?

Yes

No