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Baldwin company is currently using 199% of its capacity for its product Bing. To meet the 20,000 unit increase in demand for Bing for the next year, Baldwin purchases 20,000 units of additional capacity with no automation for the capacity. This new capacity will be available on January 1 of the next year. If Bing's selling price per unit is $10, its direct materials per unit is $3, and its direct labor per unit is $5, and there are no carrying costs for Bing, what is the ROI for this new investment in capacity? Group of answer choices .67 .33 .5 None of the above

Respuesta :

Answer: please refer to the explanation section

Explanation:

The question is incomplete to calculate Return on investment we need the investment amount (the Purchase price of the new production  capacity acquired), to illustrate how Return on Investment is Calculated we will assume 20000 units of additional capacity were purchased at a price $ 400000

Bing's units = 20000

selling price = $10

Direct Material = $3

Direct labour cost = $5

Total costs =(20000 x $3)  - (20000 x 5) = $160000

Revenue = 20000 x $10 = $200000

Profit = $200000 - $160000 = $40000

Return on Investments

Return on investments = net profit/purchase price

Return on investments = 40000/400000 = 0.1 x 100 = 100%

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