Consider the following data regarding budgeted operations for 20X7 of the Portla

Question

Consider the following data regarding budgeted operations for 20X7 of the Portland division of Machine Products: Average total assets Receivables $220,000 Inventories $290,000 Plant & equipment, net $450,000 Total $960,000 Fixed Overhead $300,000 Variable Cost $1 per unit Desired rate of return on average total assets 25% Expected volume 150,000 units 1a. What average unit sales price does the Portland division need to obtain its desired rate of return on average total assets? b. What would be the expected capital turnover? c. What would be the return on sales? 2a. If the selling price is as previously computed, what rate of return will the division earn on total assets if sales volume is 170,000 units? b. If sales volume is 130,000 units? 3. Assume that the Portland division plans to sell 45,000 units to the Calgary division of Machine Products and that it can sell only 105,000 units to outside customers at the price computed in requirement 1a. The Calgary division manager has balked at a tentative transfer price of $4. She has offered $2.25, claiming that she can manufacture the units hereself for that price. The Portland division manager has examined his own data. He had decided that he could eliminate $60,000 of the Calgary division and sold only 105,000 units to outside customers. Should he sell for $2.25? Show computations to support your answer.

Explanation / Answer

Portland division of Machine xxxxxxxx xxxxxxx total assets xxxxxxxx xxxxx in xxxxx 150,000 receivables xxxxxxxx Selling xxxxx Per xxxx xxxxx xxxxxxxxxxx xxxxxxxx xxxxxxxx xxxx xxx Unit xxxxx xxxxx xxxxxxxxx Assets xxxxxxxx Fixed Overhead xxxxxxxx xxxxxxxxxxxx xxx xxxx xxxxx Desired Return xx Average xxxxx xxxxxxx xxxxxxxx xx a) xxxx xxxx xxxxx to get the xxxxxxx rate xx xxxxxx xx Average total assets $4.60 2. xx Sales Price $690,000 Capital Turnover xxxxxxx Variable xxxx xxxxxxxx xx xx Contribution xxxxxxxx xxxxxx xx Sales 34.78% Fixed xxxxxxxx xxxxxxxx Net Income $240,000 2. a) Selling xxxxx $4.60 xxxxxx xx Units 170000 Sales xxxxxxxx Variable xxxx xxxxxxxx xxxxxxxxxxxx $612,000 xxxxx Overhead xxxxxxxx Net xxxxxx $312,000 xxxxxx xx xxxxx xxxxx 39.90% 2. xx xxxxxxx Price xxxxx xxxxxx of Units xxxxxx Sales $598,000 Variable xxxx $130,000 Contribution $468,000 xxxxx Overhead xxxxxxxx xxx xxxxxx xxxxxxxx xxxxxx on xxxxx xxxxx xxxxxx x Tantive Cost xx xxxxxxxxxx Total xxxx xx xxxxxxxxxx xxx 150,000 unit Total cost of xxxxxxxxxx for 105,000 xxxx xxxxxxxxxx xxxxxxx xxxxx xxxxxxx xxxxx Selling xxxxx $4.60 xxxxx xxxxx Variable Cost $1.00 $1.00 $0.00 Contribution per unit xxxxx $3.60 xxxxx Operating xxxxxx xxxxxxx total xxxxxx xxxxxxxx $130,000 receivables xxxxxxxx xxxxxxxx xxxxxxxxxxx $450,000 xxxxxxxx Total xxxxxxxxx Assets xxxxxxxx $810,000 Desired xxxxxx on xxxxxxx total xxxxxxx $240,000 $202,500

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