Asset turnover ratio: It is a type of an efficiency ratio which measures the ability of an entity to generate sales from its assets by making a comparison of the net sales with average of total assets. This ratio basically helps to understand how the company makes the use of assets appropriately to generate its sales. Return on assets: This ratio helps the company to find the percentage of profit in relation to its overall resources available. It can be calculated by dividing the net income and total assets. To determine the relationship of the asset turnover to the return on assets.

Question

Chalmers Corporation operates in multiple areas of the globe, and relatively large price changes are common. Presently, the company sells 110,200 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $2,079,500. Production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 15 percent in the coming year. Of the $20 variable costs, 25 percent are from labor and 50 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 12 percent. It is also expected that fixed costs will rise by 10 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 8 percent during the year. Required: Compute the volume in units and the dollar sales level…

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Chapter 24, Problem 26Q

To determine

Asset turnover ratio: It is a type of an efficiency ratio which measures the ability of an entity to generate sales from its assets by making a comparison of the net sales with average of total assets. This ratio basically helps to understand how the company makes the use of assets appropriately to generate its sales.

Return on assets: This ratio helps the company to find the percentage of profit in relation to its overall resources available. It can be calculated by dividing the net income and total assets.

To determine the relationship of the asset turnover to the return on assets.

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Chalmers Corporation operates in multiple areas of the globe, and relatively large price changes are common. Presently, the company sells 110,200 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $2,079,500. Production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 15 percent in the coming year. Of the $20 variable costs, 25 percent are from labor and 50 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 12 percent. It is also expected that fixed costs will rise by 10 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 8 percent during the year. Required: Compute the volume in units and the dollar sales level…

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