1.
Concept Introduction:
For accepting an extra offer company needs to recover at least variable cost from that offer. To recover the cost from that offer, the company sold it at variable cost. To accept these types of fixed cost is irrelevant for accepting the offer.
To Calculate:Unit product cost.
2.
Concept Introduction:
For accepting an extra offer company needs to recover at least variable cost from that offer. To recover the cost from that offer company sold it at variable cost. To accept these types of fixed cost is irrelevant for accepting the offer.
To Calculate: Mark up percentage on cost.
3.
Concept Introduction:
For accepting an extra offer company needs to recover at least variable cost from that offer. To recover the cost from that offer company sold it at variable cost. To accept these types of fixed cost is irrelevant for accepting the offer.
To Calculate: Selling price of new product.
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Chapter 6A Solutions
CONNECT ONLINE ACCESS F/MANAGERIAL ACC.
- Assume 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 Unit product cost Estimated annual selling and administrative expenses Estimated investment required by the company Desired return on investment (ROI) 15,000 $ 33.00 $ 63,900 $780,000 12% The selling price that the company would establish using a markup percentage on absorption cost is closest to:arrow_forwardTarget Costing Basic Motor Corporation uses target costing. Assume that Basic marketing personnel estimate that the competitive selling price for the QuikCar in the upcoming model year will need to be $23,400. Assume further that the QuikCar's total unit cost for the upcoming model year is estimated to be $19,900 and that Basic requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost). a. What price will Basic establish for the QuikCar for the upcoming model year?$ b. Since the estimated manufacturing cost is less than the target cost, Basic must reduce its total costs to maintain competitive pricing within its profit objectives.arrow_forwardPaty Ltd operating business of shipping it is contemplating two cost structures for its operations. A. The plan has high variable cost pu shipped with lower annual fixed costsB. The plan has lower variable cost with higher fixed cost.Details of Cost:Plan A:Per shipment revenue=100Variable cost per shipment delivered=85Contribution=15Annual fixed cost=1,200,000Plan B:Per shipment revenue=100Variable cost per shipment delivered=60Contribution=40Annual fixed cost=4,500,000Required:1.BEP (In volumes) for both the plans2.Under plan A to produce an operating income of 30,000, how many shipments to be made.3. Shipments to be made under plan A to produce an operating margin which is equal to 9% of sales revenue in total.arrow_forward
- Absorption 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_forwardMartin 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. 10,500 24 32 Unit product cost Estimated annual selling and administrative expenses Estimated investment required by the company Desired return on investment (ROI) 34,800 $ 690,000 ok 12% nt Required: 1. Compute the markup percentage on absorption cost required to achieve the desired ROI. 2. Compute the selling price per unit. (Do not round intermediate calculations. Round your answer to 2 decimal places.) nt ences 1. Markup percentage on absorption cost 2. Selling price per unit Prev 1 of 3 Next >arrow_forwardFixed cost = 10,000 Material cost per unit = 0.15 Labor cost per unit = 0.10 Revenue per unit = 0.65 Suppose ABC company sells all that it produces, profit is calculated by subtracting the fixed cost and total variable cost from total revenue.Give a mathematical model for calculating profit and implement your model from part in Excel. If ABC company makes 12,000 units of the new product, what is the resulting profit? Excel format requiredarrow_forward
- Assume 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_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 Unit product cost Estimated annual selling and administrative expenses Estimated investment required by the company Desired return on investment (ROI) What is the markup percentage on absorption cost required to achieve the desired ROI? 15,000 30 $ $81,900 $780,000 12%arrow_forwardAbsorption Costing Approach to Cost-Plus Pricing; Customer Latitude and Pricing Messina Company wants to use absorption cost-plus pricing to establish the selling price for a new product. The company plans to invest $650,000 in operating assets that provide the capacity to make 30,000 units. Its required return on investment (ROI) in its operating assets is 20%. Messina’s Accounting Department set a goal of producing and selling 20,000 units during the new product’s first year of availability. It also provided the following cost estimates for the new product: Required: 1. If the company plans to produce and sell 20,000 units, what is the absorption unit product cost for its new product? 2. At a planned sales volume of 20,000 units, what is the markup percentage on absorption cost for the new product? 3. Using absorption cost-plus pricing and assuming a planned sales volume of 20,000 units, what selling price would the company establish for its new product? 4. Using an absorption…arrow_forward
- Use the following to answer questions 4-5: Division A produces a part with the following characteristics: Capacity in Units Selling Price per Unit Variable Costs per Unit Fixed Costs per Unit 50,000 units $30 $18 $ 3 Division B, another division in the company, would like to buy this part from Division A. Division B is presently purchasing 4,000 parts from an outside source at $27 per unit. If Division A sells to Division B, $2 in variable costs can be avoided. 4. Suppose Division A is currently operating at capacity and can sell all of the units it produces on the outside market for its usual selling price. From the point of view of Division A, any sales to Division B should be priced no lower than which of the following? A) $30. $18. B) C) D) $29. $28. 5. Given the information in 4 above, what would the effect on the operating income of the company as a whole, if Division B continues to purchase all the parts from its outside source? A) $12,000 increase B) $ 4,000 decrease C) $12,000…arrow_forwardDivision X makes a part with the following characteristics: Production capacity 25,000 units Selling price to outside customers $18 Variable cost per unit $11 Fixed costs, total $100,000 Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $17 each. Suppose Division X has sufficient excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $17 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be: better off by $60,000 each period. O worse off by $60,000 each period. worse off by $70,000 each period. better off by $10,000 each period. worse off by $20,000 each period. O O O O <arrow_forwardAnalyzing Income under Absorption and Variable Costing Variable manufacturing costs are $83 per unit, and fixed manufacturing costs are $126,000. Sales are estimated to be 6,000 units. If an amount is zero, enter "0". Round intermediate calculations to the nearest cent and your final answers to the nearest dollar. a. How much would absorption costing operating income differ between a plan to produce 6,000 units and a plan to produce 8,400 units?$ b. How much would variable costing operating income differ between the two production plans?$arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
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