The giftware division of Morgan Company sells decorative plates. The giftware division has total fixed costs of $2,500,000 and average investment of $10,000,000. The average contribution margin per unit is $8.

REQUIRED:

1. If the manager of the division is evaluated based on the divisions return on investment what is the minimum level of sales the division must achieve to provide a return on investment of 15%?

2. Assume the manager of the division is evaluated using residual income and the cost of capital is assessed as 20%. What is the minimum level of sales the division must achieve to achieve a non-negative residual income?