Question

Oxford Company has two divisions. Thames Division, which has an investment base of $91,900,800, produces and sells 1,500,500 units of a product at a market price of $150 per unit. Its variable costs total $77 per unit. The division also charges each unit $90 of fixed costs based on a capacity of 1,550,000 units.

Lakes Division wants to purchase 305,000 units from Thames. However, it is willing to pay only $184 per unit because it has an opportunity to accept a special order at a reduced price. The order is economically justifiable only if Lakes can acquire Thames’ output at a reduced price.

Required (a). What is the ROI for Thames without the transfer to Lakes?

Answer 1