Required information [The following information applies to the questions display

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Required information [The following information applies to the questions displayed below Corrientes Company produces a single product in its Buenos Aires plant that currently sells for 5.90p per unit. Fixed costs are expected to amount to 58,000p for the year, and all variable manufacturing and administrative costs are expected to be incurred at a rate of 2.10p per unit. Corrientes has two salespeople who are paid strictly on a commission basis. Their commission is 9 percent of the sales revenue they generate. (Ignore income taxes.) (p denotes the peso, Argentina's national currency. Many countries use the peso as their national currency. On the day this exercise was written, Argentina's peso was worth .104 U.S. dollar.) Required: 1. Suppose management alters its current plans by spending an additional amount of 3,300p on advertising and increases the selling price to 6.90p per unit. Calculate the profit on 64,000 units. (Do not round intermediate calculations. Enter your answer in pesos.) Profit

Explanation / Answer

1. Calculation of Profit on 64000 Sales

2. Price Corrientes would have to charge per unit on this special order to earn additional profit of 36,800p

Note

Actual Profit computation without the additional Profit

1. Which of the two approaches could be aptly labled price-led costing?

Target Costing

Target costing uses the price to determine the cost.
Here Leno Corporation doesn't have total control over pricing as the price is limited to what the market pays ($460).

It has to sell at an amount favourable than what market pays.
Target Costing helps to design its entire production process around meeting the cost.

2. Leno's current selling Price of Item no. 8976

3. What must happen to costs, if the company desires to meet the market price and maintain its current rate of profit on sales? By how much?

In target costing, a business starts by determining how much it wants to charge for a product. It then subtracts its desired profit from that price to arrive at the maximum cost it can afford to pay to produce that product.

In this case, the market price of the item 8976 is $460. However Price what Leno charging is 525. This is higher than that of prevailing market price. Leno should redesign its entire production process to reduce the cost to maintain its current rate of profit.

Total Cost should be reduced by 52

4. Would identification of value-added and non-value-added costs assist Leno in this situation?

Yes

The goal of identifying value-addend and non-vale-added costs is to provide the greatest amount of value to customers while utilizing the least amount of your resources.If what you are providing is not something the customer would be willing to pay you for, then you are not providing value to the customer.

Leno has recently lost considerable business to foreign competitors that have become very aggressive in the marketplace. Inorder to survive in the current situation; Leno should eliminate non-added-value costs.

Example 1) Replacing outdated and worn out machinery and equipment that frequently breaks down and causes delays. 2) Grouping together the inventory items you need to complete a job to eliminate time wasted looking for items. 3) Ordering just enough inventory items to satisfy your production or retail demands while avoiding excess inventory.

5. What might Leno be forced to do with its markup on cost to remain competitive? By how much?

In order to be competitive Leno shoud reduce the cost price from 525 to 460. (by $65)

If cost cannot be reduced, mark up should be reduced from 105 to 40.

New Mark up in percentage will be : 40 / 420 = 0.0952 = 9.52%

That is reduce Markup Percentage by 15.48%

6. In many industries, prices are the result of an interaction betwen market forces and costs?

True

Interaction of Market forcesand cost will cause prices to increase when supply decreases or demand increases, whereas prices will fall when demand decreases or supply increases.

Particulars p Workings Sales 441600 64000 x 6.9 Less: Variable Cost 134400 64000 x 2.1 Less: Fixed Cost 58000 given Cost of Sales 249200 Other Fixed Cost: Less: Commission 79488 441600 x 9% x2 Less: Advertising Expenses 3300 given Profit 166412

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