ChemCo has developed a new product, with average operating assets of $1,800,000,

and Plant and Equipment of $1,200,000, and has consulted with the Marketing De-partment, who have determined that the market share will be 50,000 units, and have recommended that a selling price of $140.00 per unit would be appropriate.

Required: Use the above information to compute the following:

Part A

1. Compute the margin, and expected turnover
2. Compute the ROI
3. Comparative information available for similar companies follow:

Sales $9,000,000

Variable Expenses 3,500,000

Fixed Costs 3,000,000

Operating Assets $ 3,000,000

Explain why it is necessary to do the above computations, and how management can use this information

[12 marks][10 minutes]

Part B

At the end of the first year of operations, following are the results:

Sales targets have been successful, but Variable expenses were 12% above expectations, as a result of inflation, and fixed costs turned out to be 10% above plan.

Required:

1. Determine the net operating income
2. Compute the Margin, Turnover and ROI