Question :
Exercises
Ex. 160
Stone Company considering introducing a new line of pagers, : 1311814
Exercises
Ex. 160
Stone Company is considering introducing a new line of pagers, targeting the preteen population. Stone believes that if the pagers can be priced competitively at $45, approximately 300,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,000,000 will be required. Stone requires a minimum rate of return of 16% on all investments.
Instructions
Compute the target cost per unit of the pager.
Ex. 161
Mellie Computer Devices Inc. is considering the introduction of a new printer. The company’s accountant had prepared an analysis computing the target cost per unit but misplaced his working papers. From memory he remembers the estimated unit sales price was $200 and the target unit cost was $195. Sales were projected at 100,000 units with a required $5,000,000 investment.
Instructions
Compute the required minimum rate of return.
Ex. 162
Laserspot is involved in producing and selling high-end golf equipment. The company has recently been involved in developing various types of laser guns to measure yardages on the golf course. One small laser gun, called LittleLaser, appears to have a very large potential market. Because of competition, Laserspot does not believe that it can charge more than $80 for LittleLaser. At this price, Laserspot believes it can sell 100,000 of these laser guns. LittleLaser will require an investment of $7,500,000 to manufacture, and the company wants an ROI of 16%.
Instructions
Determine the target cost for one LittleLaser.
Ex. 163
Joey’s Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,000 sessions. The company has invested $2,000,000 in the studio and expects a return on investment (ROI) of 16.5%. Budgeted costs for the coming year are as follows.
Per Session Total
Direct materials (tapes, CDs, etc)$60
Direct labor$400
Variable overhead$50
Fixed overhead$850,000
Variable selling and administrative expenses$40
Fixed selling and administrative expenses$800,000
Instructions
(a) Determine the total cost per session.
(b) Determine the desired ROI per session.
(c) Calculate the mark-up percentage on the total cost per session.
(d) Calculate the target price per session.
Ex. 164
Rita Corporation produces commercial fertilizer spreaders. The following information is available for Rita’s anticipated annual volume of 400,000 units.
Per Unit Total
Direct materials$32
Direct labor54
Variable manufacturing overhead72
Fixed manufacturing overhead$12,000,000
Variable selling and administrative expenses34
Fixed selling and administrative expenses7,200,000
The company has a desired ROI of 20%. It has invested assets of $120,000,000.
Instructions
Compute each of the following:
1.Total cost per unit.
2.Desired ROI per unit.
3.Markup percentage using total cost per unit.
4.Target selling price.
