Posted: July 10th, 2016

Consider the following data regarding budgeted operations for 20X7 of the Portland division of Machine Products:

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Average total assets

Receivables $220,000

Inventories 290,000

Plant and equipment, net 450,000

Total $960,000

Fixed overhead $300,000

Variable Costs $1 per unit

Desired rate o return on average total assets 25%

Expected volume 150,000 units

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1. a. 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?

2. a. 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 herself for that price. The Portland division manager has

examined his own data. He had decided that he could eliminate $60,000 of

inventories, $90,000 of plant and equipment, and $22, 500 of fixed overhead if he did

not sell to the Calgary division and sold only 105,000 units to outside customers.

Should he sell for $2.25? Show computations to support your answer.

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