David Dooler, majority stockholder and president of Deeler, Inc., is working wit

Question

David Dooler, majority stockholder and president of Deeler, Inc., is working with his top managers on future plans for the company. As the company's managerial accountant you've been asked to analyze the following situations and make recommendations to the management team Read the requirements 1a. What is Division A's target full product cost? Revenue at current market price Less: Desired profit Target full product cost 1b. Given the division's current costs, wil Division A be able to achieve its target profit? Begin by calculating Division A's current full product cost s 1,950,000 408,000 S 1,542,000 Plus Current ful product cost

Explanation / Answer

1 Deeler Inc. A Revenue at Current Market Price 1950000 Less: Desired Profit (8% of 5100000) 408000 Target Full Product Cost 1542000 B Deeler Inc. Variable Cost(520000*1.40) 728000 Plus: Fixed Cost 824000 Current Full Cost 1552000 Division A will not able to achieve the target profit since cost is more than target product cost C Deeler Inc. Revenue at Current Market Price 1950000 Less: Desired Profit (8% of 5100000) 408000 Target Full Product Cost 1542000 Less: Variable Cost(520000*1.25) 650000 Target Full Fixed Cost 892000 Actual Fixed Cost 824000 Now, it will be able to achieve the target profit D Deeler Inc. Variable Cost(520000*1.25) 650000 Plus: Fixed Cost(824000+155000) 979000 Current Full Cost 1629000 ADD: Desired Profit (8% of 5100000) 408000 Cost Plus Profit(A) 2037000 Units(B) 520000 Per Unit Selling Price(A/B) 3.92 It will be quite difficult to differentiate the product with competitors offering similar product It looks like a price sensitive market

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