1.
Introduction: The incremental profit earned on sales of each unit as a result of all associated variable cost being deducted from the price of the product is termed as the contribution margin.
To calculate: The unit product cost for remodeled product.
1.
Answer to Problem 6A.12P
Total unit production cost $28
Explanation of Solution
Fixed manufacturing:
| Particular | |
| Direct material cost | 12 |
| Direct labor | 8 |
| Variable manufacturing OH | 3 |
| Fixed manufacturing OH | 5 |
| Total Unit product cost | 28 |
Total unit production cost $28
2.
Introduction: The incremental profit earned on sales of each unit as a result of all associated variable cost being deducted from the price of the product is termed as the contribution margin.
To calculate: The markup percentage on absorption cost for the remodeled
2.
Answer to Problem 6A.12P
Mark up percentage is 37.5%
Explanation of Solution
Required
Product margin:
Product margin per unit:
Markup percentage:
Mark up percentage is 37.5%
3.
Introduction: The incremental profit earned on sales of each unit as a result of all associated variable cost being deducted from the price of the product is termed as the contribution margin.
The Selling price company should establish mark up percentage on absorption cost.
3.
Answer to Problem 6A.12P
Thus required selling price is 38.5
Explanation of Solution
Required selling price:
Thus required selling price is 38.5
4.
Introduction: The incremental profit earned on sales of each unit as a result of all associated variable cost being deducted from the price of the product is termed as the contribution margin.
The
4.
Answer to Problem 6A.12P
Return on investment is 18.45 %
Explanation of Solution
| Particular | Amount |
| Sales | 731500 |
| Less: COGS | 532000 |
| Gross margin | 199500 |
| Less: Selling expense | 79000 |
| Income | 120500 |
Return on investment is 18.45 %
5.
Introduction: The incremental profit earned on sales of each unit as a result of all associated variable cost being deducted from the price of the product is termed as the contribution margin.
The revised selling price at lower sales level.
5.
Answer to Problem 6A.12P
new price is 40.5
Explanation of Solution
Required rate of return:
Product margin:
Product margin per unit:
Markup percentage:
| Particular | Amount |
| Net earning | 120500 |
| Target net earning | 130000 |
| Differential earning | 9500 |
| Number of units | 19000 |
| Price to be increased by: | 2 |
| Old price | 38.5 |
| New price | 40.5 |
Thus new price is 40.5
6.
Introduction: The incremental profit earned on sales of each unit as a result of all associated variable cost being deducted from the price of the product is termed as the contribution margin.
The revised selling price and profit at lower sales level
6.
Answer to Problem 6A.12P
Optimal selling price is $41.58, profit on optimal selling price is $179020. The increase in the price of the product will be recommended as the company is earning more profit even if the sales is decreasing
Explanation of Solution
- Optimal selling price:
- Profit on optimal selling price:
| Particular | Amount |
| Sales | 790020 |
| Less: COGS | 532000 |
| Gross margin | 285020 |
| Less: Selling expense | 79000 |
| Income | 179020 |
The increase in the price of the product will be recommended as the company is earning more profit even if the sales is decreasing
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Chapter 6A Solutions
MANAGERIAL ACCOUNTING FOR MANAGERS AC
- Sales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at 60 each in the coming year. Variable cost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed cost equals 78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Chillmax must make to earn operating income of 81,900 by using the point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1.arrow_forwardAssume that a company uses the absorption costing approach to cost-plus pricing. It is considering the introduction of a new product. To determine a selling price, the company has gathered the following information: Number of units to be produced and sold each year 15,000 Unit product cost $ 35.50 Estimated annual selling and administrative expenses $ 63,900 Estimated investment required by the company $ 780,000 Desired return on investment (ROI) 12 % The selling price that the company would establish using a markup percentage on absorption cost is closest to: Multiple Choice $46.00. $41.80. $48.00. $50.00.arrow_forwardK A product costs $500 to manufacture and $30 to market and $10 to distribute (ship to customers) R&D costs are allocated at $20 per unit. Based on a targeted rate of return, manager uses a mark-up of 10%. What is the markup component based on a Cost-Plus pricing approach?arrow_forward
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- Company E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $14. Division B produces Component X and has excess capacity. Using the following data, what would the transfer price per unit if Division A purchased Component X from Division B at the cost plus assuming 22% transfer price? • Variable cost per unit $7.27 Fixed cost per unit 1.93 • Division B sales price of Component X 14.50arrow_forwardMajesty Company uses target costing to ensure that its products are profitable. Assume Majesty is planning to introduce a new product with the following estimates: Estimated market price $ 1,500 Annual demand 86,000 units Life cycle 7 years Target profit 26 % return on sales Required: 1. Compute the target cost of this product. 2. Compute the target cost if Majesty wants a 36 percent return on sales. 3. Compute the target cost if Majesty wants a 7 percent return on sales.arrow_forwardAbsorption Costing Approach to Cost-Plus Pricing Currington Company wants to use absorption cost-plus pricing to set the selling price on a newly remodeled product. The company plans to invest $150,000 in operating assets to produce and sell 12,000 units. Its required return on investment (ROI) in its operating assets is 16%. The accounting department has provided cost estimates for the new product as follows: Required: 1. What is the unit product cost for the remodeled product? 2. What is the markup percentage on absorption cost for the remodeled product? 3. What selling price would the company establish for its remolded product using a markup percentage on absorption cost? 4. Suppose the company actually sold only 10,000 units (instead of its planned sales volume of 12,000 units) at the selling price that you derived in requirement 3. What ROI did the company actually earn at this lower sales volume? 5. Assume that the company wants to raise the price of its newly remodeled product…arrow_forward
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