The Tokyo Division of Toy King manufactures “Togo Toy” and sells them in the Japanese market for P6,000 each. The following data are from the Tokyo Division’s 2018 budget: Variable Cost P3,800 per unit Fixed Overhead P6,080,000 Total Assets P12,500,000 Toy King has instructed the Tokyo Division to budget a rate of return on total assets (before taxes) of 20%. 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 Toy King. The Tokyo manager has offered to sell the 1,400 units for P5,500 each. The American Marketing Division manager has countered with an offer to pay P5,000 per unit, claiming that she can subcontract production to an American producer at a cost equivalent to P5,000. The Tokyo 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 Tokyo manager sell for P5,000 per unit? Support your answer with the relevant computations. Ignore the effects of income taxes and import duties.
The Tokyo Division of Toy King manufactures “Togo Toy” and sells them in the Japanese market for P6,000 each. The following data are from the Tokyo Division’s 2018 budget:
Variable Cost P3,800 per unit
Fixed
Total Assets P12,500,000
Toy King has instructed the Tokyo Division to budget a
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 Toy King. The Tokyo manager has offered to sell the 1,400 units for P5,500 each. The American Marketing Division manager has countered with an offer to pay P5,000 per unit, claiming that she can subcontract production to an American producer at a cost equivalent to P5,000. The Tokyo 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 Tokyo 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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