The Shibuya Division of Mihoyo manufactures "Genshin Impact" and sells them in the Japanese market for P6,000 each. The following data are from the Shibuya Division's 2018 budget: Variable cost- P3,800 per unit Fixed overhead-P6,080,000 Total assets-P12,500,000 Mihoyo has instructed the Shibuya Division to budget a rate of return on total assets (before taxes) of 20%. 1. Suppose the Shibuya Division expects to sell 3,400 units during 2018: a. What rate of return will be earned on total assets? b. What would be the expected capital turnover? c. What would be the operating income percentage of sales?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
The Shibuya Division of Mihoyo manufactures "Genshin Impact" and sells them in the Japanese market for P6,000 each. The following data are from the Shibuya Division's 2018 budget:
Variable cost- P3,800 per unit
Fixed overhead-P6,080,000
Total assets-P12,500,000
Mihoyo has instructed the Shibuya Division to budget a
1. Suppose the Shibuya Division expects to sell 3,400 units during 2018: a. What rate of return will be earned on total assets?
b. What would be the expected capital turnover?
c. What would be the operating income percentage of sales?
2. The Shibuya Division is considering adjustments in the budget to reach the desired 20% 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 3,400 units. How much must total assets be reduced to obtain the desired return? Assume that for every P1,000 decrease in total assets, fixed costs decrease by P100.
3. Assume that only 2,400 units can be sold in the Japanese market. However, another 1,400 units can be sold to the American Marketing Division of Mihoyo. The Shibuya Division manager has countered with an offer to pay P5,000 per unit, claiming that she manager has offered to sell the 1,400 units for P5,500 each. The American Marketing can subcontract production to an American producer at a cost equivalent to P5,000. The Shibuya manager knows that if his production falls to 2,400 units he could eliminate some assets, reducing total assets to P10 million and annual fixed overhead to P4.9 million. Should the Shibuya manager sell for P5,000 per unit? Support your answer with the relevant computations. Ignore the effects of income taxes and import duties.
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