Manager of Waco Division of National Church Tours is creating budget for upcoming year. At this point, he has found out that average total assets for upcoming year will equal $4,000,000. Manager is estimated on amount of residual income generated by division. Suppose variable costs in Waco Division are expected to equal 60% of total sales and fixed costs are expected to equal $400,000.
A. Calculate sales level which would generate a 20% return on investment.
B. Suppose rate of return is 15%, find out level of sales which would generate $200,000 of residual income.