The Sendai division of Shusei Toy Company manufactures units of the game Shogi and sells them in the Japanese market for ¥7,350 each. The following data are from the Sendai division’s 20X8 budget:

Variable cost …….. ¥ 4,900 per unit

Fixed overhead …….. ¥ 5,700,000

Total assets ………… ¥16,000,000

Shusei has instructed the Sendai division to budget a rate of return on total assets (before taxes) of 24%.

1. Suppose the Sendai division expects to sell 3,350 games during 20X8.

a. What rate of return will be earned on total assets?

b. What would be the expected capital turnover?

c. What would be the return on sales?

2. The Sendai division is considering adjustments in the budget to reach the desired 24% rate of return on total assets.

a. How many units must be sold to obtain the desired return if no other part of the budget is changed?

b. Suppose sales cannot be increased beyond 3,350 units. How much must total assets be reduced to obtain the desired return? Assume that for every ¥1,000 decrease in total assets, fixed costs decrease by ¥100.

3. Assume that only 2,950 units can be sold in the Japanese market. However, another 1,200 units can be sold to the European marketing division of Shusei. The Sendai manager has offered to sell the 1,200 units for ¥6,450 each. The European marketing division manager has countered with an offer to pay ¥6,150 per unit, claiming that she can subcontract production to an Italian producer at a cost equivalent to ¥6,150. The Sendai manager knows that if his production falls to 2,950 units, he could eliminate some assets, reducing total assets to ¥11 million and annual fixed overhead to ¥5.4 million. Should the Sendai manager sell for ¥6,150 per unit? Support your answer with the relevant computations. Ignore the effects of income taxes and import duties.