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ID: 2512251 • Letter: T
Question
this the question
this the similar example i nee dthe work in same way
Red Roof, Inc., manufactures and sells a do-it-yourself storage shed kit. In 2012, it reported the following ?(Click to view the information.) Read the requirements Requirement 1. What was Red Roofs operating income in 2012? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost? What was Red Roofs operating income in 20 Select the labeis, hen enter the amounts anData Table Requirements 4,000 1. What was Red Roof's operating income in 2012? What was the full cost per unit? What Units produced and sold Investment Markup percentage on full cost Rate of return on investment Variable cost per unit was the selling price? What was the percentage markup on variable cost? $ 2,750,000 2. Red Roof is considering increasing the annual spending on advertising by $150,000. The managers believe that the investment will translate into a 12% increase in unit sales Should the company make the investment? Show your calculations. Refer back to the original data. In 2013, Red Roof believes that it will only be able to sell 3,600 units at the price calculated in requirement 1, Management has identified $275,000 in fixed cost that can be eliminated. If Red Roof wants to maintain an 10% markup on full cost, what is the target variable cost per unit? 1096 16 % 3. PrintDone Print DoneExplanation / Answer
Solution:
Requirement 1
Investment
x
Rate of Return on Investment
=
Operating Income
$2,750,000
x
16%
=
$440,000
Full Cost per unit
Operating Income per unit
/
Markup percentage on full cost
=
Full Cost per unit
$110
/
10%
=
$1,100
(440,000 / 4000 Units)
Selling Price per Unit
Full Cost per unit
+
Operating Income per unit
=
Selling Price per unit
$1,100
+
$110
=
$1,210
Percentage Markup on variable cost
Operating Income Per Unit
/
Variable Cost per unit
=
Markup on Variable Cost
$110
/
$500
=
22.00%
Requirement 2—
Increase in Contribution Margin
(4,000 Units x 12% x Contribution Margin Per Unit $710)
$340,800
Less: Advertising Costs
$150,000
Increase (decrease) in operating income
$190,800
Note -- Contribution Margin per unit = Unit Selling Price 1210 – Variable Cost 500 = $710
Red roof should spend $150,000 on advertising
Requirement 3
Sales Revenue (3600 Units x 1210)
$4,356,000
Target full cost at 10% markup (3600 Units x 1100)
$3,960,000
Less: Target total fixed costs
Target total variable costs
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Requirement 1
Investment
x
Rate of Return on Investment
=
Operating Income
$2,750,000
x
16%
=
$440,000
Full Cost per unit
Operating Income per unit
/
Markup percentage on full cost
=
Full Cost per unit
$110
/
10%
=
$1,100
(440,000 / 4000 Units)
Selling Price per Unit
Full Cost per unit
+
Operating Income per unit
=
Selling Price per unit
$1,100
+
$110
=
$1,210
Percentage Markup on variable cost
Operating Income Per Unit
/
Variable Cost per unit
=
Markup on Variable Cost
$110
/
$500
=
22.00%
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