Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Galahad Products is a division of Lancelot plc and it sells one item, the Grail. The budget for the year to 31 December 2022 contains
Galahad Products is a division of Lancelot plc and it sells one item, the Grail. The budget for the year to 31 December 2022 contains the following information: Selling price per unit 100 Variable cost per unit 55 Total fixed costs 500,000 Investment 1,000,000 Sales units 30,000 You are required to answer the following questions considering each one independently and supporting your answers with your calculations: a. What is the budgeted Return on Investment (ROI) for Galahad? b. The minimum desired ROI for the company is 20% and the divisional manager wishes to maximize Residual Income (RI). (5 marks) Galahad manufactures components for its single product at a variable cost of 20 per component. They have been approached by an outside company which maintains that it can supply the product at the correct quality and on a consistent basis as required by Galahad for 25 for 30,000 units. If Galahad accepts this offer its fixed overhead cost will be reduced by 50,000 and assets with a book value of 100,000 will be sold at book value. Explain if Galahad should accept the offer or if they should they continue to manufacture the component themselves. Clearly shows your workings
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started