Working Papers, Volume 1, Chapters 1-15 for Warren/Reeve/Duchac's Corporate Financial Accounting, 13th + Financial & Managerial Accounting, 13th
Working Papers, Volume 1, Chapters 1-15 for Warren/Reeve/Duchac's Corporate Financial Accounting, 13th + Financial & Managerial Accounting, 13th
13th Edition
ISBN: 9781285869582
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
Question
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Chapter 24, Problem 24.5APR

a)

To determine

Product pricing: Product pricing is the method used for fixing the price for the products sold or the services offered to the consumers.

Product cost pricing: Product cost pricing is a pricing technique which sums up the costs involved in the production of the product alone and the markup is added to the sum.

Product Cost per unit = Total Product CostEstimated Units Produced and sold

Total cost pricing: Total cost pricing is a pricing technique which sums up all the costs involved in the production of the product and the markup is added to the sum.

Total Variable Cost: Total variable cost refers to the costs involved in the production of the product.

Markup Percentage: The markup percentage is the percentage of additional costs added to the product cost to get the selling price of the product.

Markup Percentage = (DesiredProfit) + (Total Selling andAdmininstrative Expenses)Total Product Cost

Selling Price: Selling price is calculated by summing up the product cost per unit and the per unit markup cost

To Determine: The desired profit of Company CD.

a)

Expert Solution
Check Mark

Explanation of Solution

Desired Profit: Company CD aims at earning a profit of 15% of the total investment made of $1,500,000.

Calculate the desired profit of Company CD.

Desired profit = 15% of Invested assets= $1,500,000 × 15%= $1,500,000 × 15100= $255,000

Hence, the desired profit of Company CD is $225,000

b)

To determine

On the basis of product cost concept, for Company CD

  1. i. Cost per unit
  2. ii. Markup percentage
  3. iii. Selling price of flat panel displays

b)

Expert Solution
Check Mark

Explanation of Solution

Product cost pricing: Product cost pricing is a pricing technique which sums up the costs involved in the production of the product alone and the markup is added to the sum.

i)

Calculate the cost per unit of flat panel display.

Variable Cost (1) $1,000,000
Fixed Cost $250,000
Total $1,250,000
Divide by: Number of units 5,000
Cost per unit $250

Hence, the cost per unit of flat panel display is $250.

Working Note:

Calculate the variable cost.

Varaible Cost=(Direct Materials+Direct Labor+Factory Overhead) ×5000 units=($120+$30+$50) ×5,000 units= $200 ×5,000 units= $1,000,000 (1)

c)

To determine

On the basis of total cost concept, for Company CD

  1. i. Cost per unit
  2. ii. Markup percentage
  3. iii. Selling price of flat panel displays

c)

Expert Solution
Check Mark

Explanation of Solution

Total cost pricing: Total cost pricing is a pricing technique which sums up all the costs involved in the production of the product and the markup is added to the sum.

i)

Calculate the cost per unit of flat panel display.

Variable Cost ($235×5,000 units) $1,175,000
Fixed Cost ($250,000 + $150,000) $400,000
Total $1,575,000
Divide by: Number of units 5,000
Cost per unit $315

Hence, the cost per unit of flat panel display is $315.

d)

To determine

On the basis of variable cost concept, for Company CD

  1. i. Cost per unit
  2. ii. Markup percentage
  3. iii. Selling price of flat panel displays

d)

Expert Solution
Check Mark

Explanation of Solution

Total Variable Cost: Total variable cost refers to the costs involved in the production of the product.

i)

Variable cost per unit of flat panel display is $235.

Total variable cost of flat panel display is $1,175,000 ($235 ×5,000 units).

iii)

Calculate the selling price per unit of flat panel display

Cost per unit $235
Markup per unit ($235 ×53.19%) $125
Selling price per unit $360

Hence, the selling price per unit of flat panel display is $360.

e)

To determine

To Comment: On any other considerations that would influence the price of flat panel display.

iii)

Calculate the selling price per unit of flat panel display

Cost per unit $235
Markup per unit ($235 ×53.19%) $125
Selling price per unit $360

Hence, the selling price per unit of flat panel display is $360.

e)

Expert Solution
Check Mark

Explanation of Solution

Calculate the selling price per unit of flat panel display

Cost per unit $235
Markup per unit ($235 ×53.19%) $125
Selling price per unit $360

Hence, the selling price per unit of flat panel display is $360.

F (i)

To determine

To Prepare: The differential analysis of Company CD, for the proposed offer to either accept or reject it.

F (i)

Expert Solution
Check Mark

Explanation of Solution

Prepare the differential analysis for Company CD for the given alternatives.

Differential Analysis of Company CD
Reject Order (Alt 1) or Accept Order (Alt 2)
August 03
Reject Order (Alternative 1) Accept Order (Alternative 1) Differential Effect on income
Revenues $0 $180,000 $180,000
Costs
   Variable Manufacturing Costs $0 (2)   (-)  $152,000 (-)   $152,000
Income (loss), per unit $0 $28,000 $28,000

Table (1)

The differential analysis of Company CD shows a profit of $28,000 on accepting the offer, hence the offer should be accepted.

Working Note:

Calculate the variable manufacturing cost.

Varaible Manufacturing Cost=(Offer price  Selling andAdministrative Expenses) ×800 units=($225 $35) ×800 units= $190 ×800 units= $152,000 (2) ii)

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Chapter 24 Solutions

Working Papers, Volume 1, Chapters 1-15 for Warren/Reeve/Duchac's Corporate Financial Accounting, 13th + Financial & Managerial Accounting, 13th

Ch. 24 - Lease or sell Claxon Company owns a machine with a...Ch. 24 - Prob. 24.1BPECh. 24 - Discontinue a segment Product TS-20 has revenue of...Ch. 24 - Prob. 24.2BPECh. 24 - Make or buy A restaurant bakes its own bread for a...Ch. 24 - Make or buy A company manufactures various sized...Ch. 24 - Replace equipment A machine with a book value of...Ch. 24 - Replace equipment A machine with a book value of...Ch. 24 - Process or sell Product T is produced for 5.90 per...Ch. 24 - Process or sell Product D is produced for 24 per...Ch. 24 - Prob. 24.6APECh. 24 - Accept business at special price Product A is...Ch. 24 - Prob. 24.7APECh. 24 - Product cost markup percentage Green Thumb Garden...Ch. 24 - Bottleneck profit Product A has a unit...Ch. 24 - Prob. 24.8BPECh. 24 - Prob. 24.1EXCh. 24 - Prob. 24.2EXCh. 24 - Prob. 24.3EXCh. 24 - Differential analysis for a discontinued product...Ch. 24 - Prob. 24.5EXCh. 24 - Prob. 24.6EXCh. 24 - Prob. 24.7EXCh. 24 - Make-or-buy decision for a service company The...Ch. 24 - Machine replacement decision A company is...Ch. 24 - Differential analysis for machine replacement Kim...Ch. 24 - Prob. 24.11EXCh. 24 - Sell or process further Rise N Shine Coffee...Ch. 24 - Decision on accepting additional business...Ch. 24 - Accepting business at a special price Portable...Ch. 24 - Decision on accepting additional business...Ch. 24 - Service yield pricing and differential analysis...Ch. 24 - Product cost method of product pricing La Femme...Ch. 24 - Product cost method of product costing Smart...Ch. 24 - Target costing Toyota Motor Corporation uses...Ch. 24 - Target costing Instant Image Inc. manufactures...Ch. 24 - Prob. 24.21EXCh. 24 - Product decisions under bottlenecked operations...Ch. 24 - Appendix Total cost method of product pricing...Ch. 24 - Appendix Variable cost method of product pricing...Ch. 24 - Prob. 24.1APRCh. 24 - Differential analysis for machine replacement...Ch. 24 - Prob. 24.3APRCh. 24 - Differential analysis for further processing The...Ch. 24 - Prob. 24.5APRCh. 24 - Product pricing and profit analysis with...Ch. 24 - Differential analysis involving opportunity costs...Ch. 24 - Differential analysis for machine replacement...Ch. 24 - Differential analysis for sales promotion proposal...Ch. 24 - Differential analysis for further processing The...Ch. 24 - Prob. 24.5BPRCh. 24 - Prob. 24.6BPRCh. 24 - Ethics in Action Aaron McKinney is a cost...Ch. 24 - Prob. 24.2CPCh. 24 - Prob. 24.3CPCh. 24 - Prob. 24.4CP
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