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

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

    Average total assets

    Receivables $220000

    Inventories $290000

    Plant & equipment net $450000

    Total $960000

    Fixed Overhead $300000

    Variable Cost $1 per unit

    Desired rate of return on average total assets 25%

    Expected volume 150000 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 170000 units?

    b. If sales volume is 130000 units?

    3. Assume that the Portland division plans to sell 45000 units to the Calgary division of Machine Products and that it can sell only 105000 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
    $60000 of the Calgary division and sold only 105000 units to outside customers. Should he sell for $2.25? Show computations to support your answer.

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