Question

****PLEASE ANSWER THE QUESTIONS I GOT WRONG. THATS NUMBER 2 & 3 AND 1B.

The Switch division of Tornax Inc. produces a small switch that is used by various companies as a component part in their products Tornax operates its divisions as autonomous units, giving its divisional managers great discretion in pricing and other decisions. Each division is expected to generate a minimum required rate of return of at least 14% on its operating assets. The Switch Division has average operating assets of $700,000. The switches are sold for $5 each. Variable costs are $3 per switch, and fixed costs total $462,000 per year. The division has a capacity of 300,000 switches each year. Required 1. How many switches must the Switch Division sell each year to generate the desired rate of return on its assets? Answer is complete and correct. Number of switches 280,000 a. What is the margin earned at this level of sales? Answer is complete and correct 7 % Margin b. What is the turnover at this level of sales? Answer is complete but not entirely correct Turnover 1,400,000 2. & 3. Assume that the Switch Division's current ROl equals the minimum required rate of 14%. In order to increase the division's ROI, the divisional manager wants to increase the selling price per switch by 4%. Market studies indicate that an increase in the selling price would cause sales to drop by 20,000 units each year. However, operating assets could be reduced by $50,000 due to decreased needs for accounts receivable and inventory. Compute the margin, turnover, and ROI if these changes are made. Refer to the original data. Assume again that the Switch Division's current ROI equals the minimum required rate of 14%. Rather than increase the selling price, the sales manager wants to reduce the selling price per switch by 4%. Market studies indicate that this would fill the plant to capacity. In order to carry the greater level of sales, however, operating assets would increase by $50,000. Compute the margin, turnover, and ROI if these changes are made. (Round your intermediate calculations and final answers to 2 decimal places.) Answer is complete but not entirely correct. Incr Price 4% Decr Price 4% Units sold 260,000 300,000 Margin 8.14 % 5.42 % 1,440,000.00 1,352,000.00x Turnover ROI 16.92 % 10.40 %

Answer 1

The turnover mentioned in the above answer is correct if that is understood as sales. I have also recalculated and got the same sales figure at that level of units sale. I also rechecked all your answers.

Other possible alternative is to calculate asset turnover ratio since average asset is given in the question.

Thus in Question 1(b) turnover will be as follows:

Sales (A)	1400000
Average Asset (B)	700000
Turnover (A)/(B)	2

For question 2 & 3 it will be as follows:

Sales (A)	1352000	1440000
Average Asset (B)	650000	750000
Turnover (A)/(B)	2.08	1.92