Happy Ltd invested $500,000 in the manufacture of a new product and estimated da

Question

Happy Ltd invested $500,000 in the manufacture of a new product and estimated data for the coming year are given below:
Units to product & sell: 4000
Variable costs: Manufacturing - $204,000 Selling and administrative - $14,700 Total - $218,700
Fixed costs: Manufacturing - $36,000 Selling and administrative - $27,300 Total - $63,300
The company uses a cost-plus approach for product pricing and desires a rate of return of 21 percent per year on the amount invested. A similar product in the market is selling for $88 per unit.
Required:
a] determine the desired profit per year
b] determine the mark up percentage and selling price per unit of the new product using i] variable cost concept ii] product cost concept
Round your answers to 2 decimal places.
c] determine the selling price of the new product per unit and the total amount of cost reduction required per year if target costing is used. Happy Ltd invested $500,000 in the manufacture of a new product and estimated data for the coming year are given below:
Units to product & sell: 4000
Variable costs: Manufacturing - $204,000 Selling and administrative - $14,700 Total - $218,700
Fixed costs: Manufacturing - $36,000 Selling and administrative - $27,300 Total - $63,300
The company uses a cost-plus approach for product pricing and desires a rate of return of 21 percent per year on the amount invested. A similar product in the market is selling for $88 per unit.
Required:
a] determine the desired profit per year
b] determine the mark up percentage and selling price per unit of the new product using i] variable cost concept ii] product cost concept
Round your answers to 2 decimal places.
c] determine the selling price of the new product per unit and the total amount of cost reduction required per year if target costing is used.
Units to product & sell: 4000
Variable costs: Manufacturing - $204,000 Selling and administrative - $14,700 Total - $218,700
Fixed costs: Manufacturing - $36,000 Selling and administrative - $27,300 Total - $63,300
The company uses a cost-plus approach for product pricing and desires a rate of return of 21 percent per year on the amount invested. A similar product in the market is selling for $88 per unit.
Required:
a] determine the desired profit per year
b] determine the mark up percentage and selling price per unit of the new product using i] variable cost concept ii] product cost concept
Round your answers to 2 decimal places.
c] determine the selling price of the new product per unit and the total amount of cost reduction required per year if target costing is used.

Explanation / Answer

1) Desired Profit: Given Aount Invested is 500,000 $ Given Desired Profit % on investment is 21% So Desired Profit = 500000 * 21% is             105,000 2) i) Markup Using Varibale Cost : (Desired Profit + Fixed Cost )/ Unit Produced = Markup Given Fixed Cost is 63,300 (105000+63300)/4000                   42 Per Unit Markup = 42*4000 = 168,000 ii) Markup Using Product Cost Markup amount/Item Cost = Margin Percentage 105000/(218700+63300) 37% Markup = 500000*37% = 185,000 C) Determining Product Price Using Target Cost: Target Cost Per Unit = Selling Price /(1+Profit Margin) Variable Cost           218,700 Fixed Cost             63,300 Total Cost           282,000 Units                 4,000 Per Unit                    71 Let us Assume Selling Price is X 71 = X /(1+0.21) X= 71 *1.21 X = 86 Selling price is 86 Per Unit

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.