The manager of the Waco Division of National Church Tours is preparing the budget for the upcoming year. At this point, he has determined that average total assets for the upcoming year will equal $4,000,000. The manager is evaluated on the amount of residual income generated by the division. Assume variable costs in the Waco Division are expected to equal 60% of total sales and fixed costs are expected to equal $400,000.

A. Compute the sales level that would generate a 20% return on investment.

B. Assuming the rate of return is 15%, determine the level of sales that would generate $200,000 of residual income.