ACCT 8

The fastener division of Southern Fasteners manufactures zippers and then sells them to customers for $8 per unit. Its variable cost is $3 per unit, and its fixed cost per unit is $1.50. Management would like the fastener division to transfer 12,000 of these zippers to another division within the company at a price of $3. The fastener division could avoid $0.20 per zipper of variable packaging costs by selling internally. Determine the minimum transfer price.

"Not full capacity" = $2.80 ($3-$0.20) + 0 = $2.80 [(UVC - Reduction in zipper cost/unit) + Opp. Cost = Min. transfer price] "Full capacity" = $7.80 [($3 - $0.20) + ($8 - $3) = $7.80] [(UVC - Reduction in zipper cost/unit) + (Lost USP - UVC) = Min. transfer price]

Mussatto Corporation produces snowboards. The following per unit cost information is available: direct materials $12, direct labor $8, variable manufacturing overhead $6, fixed manufacturing overhead $14, variable selling and administrative expenses $4, and fixed selling and administrative expenses $12. Using a 30% markup percentage on total per unit cost, compute the target selling price.

$72.80 Target Selling Price = Total unit cost+(Markup percentage × Total unit cost) $12 + $8 + $6 + $14 + $4 + $12 = $56 --> Total unit cost $56 * 30% = $72.80

The Heating Division of Kobe International produces a heating element that it sells to its customers for $45 per unit. Its variable cost per unit is $25, and its fixed cost per unit is $10. Top management of Kobe International would like the Heating Division to transfer 15,000 heating units to another division within the company at a price of $29. Assume that the Heating Division has sufficient excess capacity to provide the 15,000 heating units to the other division. What is the minimum transfer price that the Heating Division should accept?

(UVC + Opp. Cost = Min. transfer price) $25 + $0 ["excess capacity = 0 opportunity cost"] = $25

AST Electrical provides the following cost information related to its production of electronic circuit boards. Variable manufacturing cost$40 Fixed manufacturing cost$30 Variable selling and administrative expenses$8 Fixed selling and administrative expenses$12 Desired ROI per unit$15 Determine AST Electrical's markup percentage using variable-cost pricing.

118.75% 1. computing the markup percentage is to add desired ROI per unit, fixed manufacturing costs per unit, & fixed selling & administrative expenses per unit $15 + $30 + $12 = $57. 2. This amount is then divided by the total variable costs per unit $40 + $8 = $48 3. The markup percentage is equal to $57/$48 = 118.75%

During the current year, Chudrick Corporation expects to produce 10,000 units and has budgeted the following: net income $300,000, variable costs $1,100,000, and fixed costs $100,000. It has invested assets of $1,500,000. The company's budgeted ROI was 20%. What was its budgeted markup percentage using a full-cost approach?

25% -Find desired ROI/unit [($1,500,000 × 20%) ÷ 10,000 = $30] -Find total unit cost [($1,100,000 + $100,000) ÷ 10,000 = $120] -Calculate markup cost % $30/$120 = 25%

After conducting a market research study, Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can besold at a target price of $260. The annual target sales volume for interior doors is 20,000.Magnificent has target operating income of 40% of sales. What is the target cost for each interior door? A) $156 B) $260 C) $104 D) $364

A) $156

Which of the following is true of target pricing? A) a price is an estimate of customersʹ perceived value of the product. B) a price is calculated by adding a markup component to the cost base. C) it is used for short-term pricing decisions. D) it is one form of cost-based pricing.

A) a price is an estimate of customersʹ perceived value of the product.

After conducting a market research study, Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can besold at a target price of $240. The annual target sales volume for interior doors is 21,000. Magnificent has target operating income of 20% of sales. What is the target cost? A) $1,008,000 B) $4,032,000 C) $5,040,000 D) $6,048,000

B) $4,032,000

Which of the following statements is true regarding cost-plus pricing? A) It starts with a target price which is the estimated price for a product. B) A company uses a markup percentage that estimates a product price that covers full product costs and earns the required return on investment. C) The cost-plus price chosen has already been studied for customer reaction to the price. D) It first determines product characteristics and target price on the basis of customer preferences and then computes a target cost.

B) A company uses a markup percentage that estimates a product price that covers full product costs and earns the required return on investment.

The cost-plus pricing approach is generally in the form ________. A) Cost base + Gross margin = Prospective selling price B) Cost base + Markup component = Prospective selling price C) Prospective selling price - Cost base = Markup component D) Variable cost + Fixed cost + Contribution margin = Prospective selling price

B) Cost base + Markup component = Prospective selling price

The desired profit margin per hour is $20. The material loading charge is 60% of invoice cost. Verde estimates that 5,000 labor hours will be worked next year. If Verde repairs a dishwasher that takes 1.5 hours to repair and uses parts of $70, compute the bill for the job. Repair-technicians' wages$110,000 Fringe benefits40,000 Overhead50,000

Bill for the job = $202 -Find Per hour charge = total cost/total hours Repair-technicians' wages$110,000 / 5,000 = $22 Fringe benefits40,000 / 5,000 = $8 Overhead50,000 / 5,000 = $10 Profit margin = $20 --> Rate charged per hour $60 -Total materials cost = Mat. Cost + Mat. Loading $ $112 = $70 + 42 [$70 x 60%] -Total repair cost "BILL" = Mat. Cost + Repair Cost $202 = $112 + $90 [$60 x 1.5]

Jackʹs Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $270 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Jackʹs Back Porchʹs policy to add a 60% markup tofull costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Jackʹs Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jackʹs Back Porch most likely bid on this long-term order? A) $345.60 per unit C) $432.00 per unit B) $86.40 per unit D) $162.00 per unit

C) $432.00 per unit

Which of the following is true of target costing? A) a key goal is to minimize value added activities of a product. B) the target cost includes all past costs to produce the product C) the target cost is the target price minus the target operating income per unit D) input from suppliers and distributors are not relevant.

C) the target cost is the target price minus the target operating income per unit

A product costs $100 to manufacture and $40 to market and $20 to distribute (ship to customers.) R&D costs are allocated at $30 per unit. Based on a targeted rate of return, manager uses amark-up of 60%. What is the markup component based on a Cost -Plus pricing approach? A) $96 B) $60 C) $84 D) $114

D) $114

Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Direct materials $1,140,000 Direct labor 795,000 Manufacturing overhead Variable 840,000 Fixed 700,000 Selling and administrative Variable 360,000 Fixed 530,000 Total costs $4,365,000 Wilde has an annual target operating income of $920,000. The markup percentage for setting prices as a percentage of the variable cost of the product is ________. A) 39.2% B) 46.3% C) 27.5% D) 68.6%

D) 68.6%

Southern Firecracker Company provides the following information for the new product it recently introduced. Total unit cost$1.25 Desired ROI per unit$0.5 Target selling price$1.75 What is Southern Firecracker Company's percentage markup on cost?

Desired ROI/Total unit cost $0.5/$1.25 = 40%.

Morales Corporation produces microwave ovens. The following per unit cost information is available: direct materials $36, direct labor $24, variable manufacturing overhead $18, fixed manufacturing overhead $40, variable selling and administrative expenses $14, and fixed selling and administrative expenses $28. Its desired ROI per unit is $30. Compute its markup percentage using a total-cost approach?

Mark-up = 18.75% $30/$36+$24+$18+$40+$14+$28

Target cost

Market Price - Desired Profit

Target cost per unit calculation

Market price -Desired profit

Morales Corporation produces microwave ovens. The following per unit cost information is available: direct materials $36, direct labor $24, variable manufacturing overhead $18, fixed manufacturing overhead $40, variable selling and administrative expenses $14, and fixed selling and administrative expenses $28. Its desired ROI per unit is $30. Compute the markup percentage using variable-cost pricing.

Markup % = 106.52% $30 + ($40 +$28) / $36 + $24 + $18 + $14) [(Desired ROI/unit + (Fix. OH/unit + Fix. S&A/unit)) ÷ (DM/unit + DL/unit + VOH/unit + Var. S&A/unit) = Var.cost markup %]

Minimum transfer price calculation

Minimum transfer price=Variable cost +Opportunity cost [VC/unit + (Lost USP - VC/unit) = Min. transfer price] or (UVC + Opp. Cost = Min. transfer price) or [New UVC + (Lost USP - Regular UVC) = Min. transfer price]

Jaymes Corporation produces high-performance rotors. It expects to produce 50,000 rotors in the coming year. It has invested $10,000,000 to produce rotors. The company has a required return on investment of 12%. What is its ROI per unit?

ROI/unit = $24 ($10,000,000 x 12%) / 50,000 = $24

Ortega Company manufactures computer hard drives. The market for hard drives is very competitive. The current market price for a computer hard drive is $45. Ortega would like a profit of $10 per drive. What target cost Ortega should set to accomplish this objective?

Target Cost = $35 ($45-$10)

Jackson Manufacturing is introducing a new product with a unit selling price of $12.50. The product required an investment of $500000, and the company requires a 20% ROI. Projected sales are 100000 units. Compute the target cost per unit.

Target cost = $11.50 $12.50 - [($500000 × 20%) / 100000]

Minimum transfer price factors

The minimum transfer price is equal to the division's variable cost plus its opportunity cost. The opportunity cost is equal to its contribution margin on goods sold to external parties. "excess capacity = 0 opportunity cost"

Per hour charge formula =

Total Cost/Total Hours

Wilmington Company charges $50 per hour for labor and has a 35% material loading charge. A recent job required 25 hours and $1000 of materials. Calculate the total cost of the job.

Total bill $2,600 = ($50 × 25 hours) + ($1000 × 1.35)

Maize Water is considering introducing a water filtration device for its 20-ounce water bottles. Market research indicates that 1,000,000 units can be sold if the price is no more than $3. If Maize Water decides to produce the filters, it will need to invest $2,000,000 in new production equipment. Maize Water requires a minimum rate of return of 16% on all investments. Determine the target cost per unit for the filter.

Total cost per unit = $2.68 per unit -Desired profit = $320,000 ($2,000,000 x 16%) -Indiv. Profit Material = $0.32 [(Invest. x Min. ROR) ÷ Est. no. of units to be sold = Profit/filter] ($320,000/1,000,000) -$3 - $0.32 = $2.68 per unit Market price -Desired profit =Target cost per unit

Target selling price

Total unit cost + (Markup percentage × Total unit cost)

Total bill calculation:

[(No. hrs. worked x Hrly. rate) + Mat. used + (Mat. used x Mat. loading %) = Tot bill]

ROI/unit formula:

[(Tot. invest. x Desired ROI %) ÷ No. of units = ROI/unit]

Markup %

[Desired ROI/unit _________________________________ (DM/unit + DL/unit + VOH/unit + FOH/unit + Var. S&A/unit + Fix. S&A/unit)

The Heating Division of Kobe International produces a heating element that it sells to its customers for $45 per unit. Its variable cost per unit is $25, and its fixed cost per unit is $10. Top management of Kobe International would like the Heating Division to transfer 15,000 heating units to another division within the company at a price of $29. The Heating Division is operating at full capacity. Assume that the units being requested are special high-performance units and that the division's variable cost would be $27 per unit (rather than $25). What is the minimum transfer price that the Heating Division should accept?

[New UVC + (Lost USP - Regular UVC) = Min. transfer price] $27 + ($45 - $25) = $47

The Heating Division of Kobe International produces a heating element that it sells to its customers for $45 per unit. Its variable cost per unit is $25, and its fixed cost per unit is $10. Top management of Kobe International would like the Heating Division to transfer 15,000 heating units to another division within the company at a price of $29. The Heating Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept?

[VC/unit + (Lost USP - VC/unit) = Min. transfer price] $25 + ($45 - $25) = $45

Rooney Small Engine Repair charges $42 per hour of labor. It has a material loading percentage of 40%. On a recent job replacing the engine of a riding lawnmower, Rooney worked 10.5 hours and used parts with a cost of $700. Calculate Rooney's total bill. Rooney's total bill $ enter Rooney's total bill in dollars

a(10.5 hours × $42) + $700 + ($700 × 40%) = $1,421

In time-and-material pricing, the labor charge includes

selling, administrative, and similar overhead costs. an allowance for a desired profit. salary and fringe benefits.

Delta Manufacturing would like its Southern Division to sell 135000 units to its Western Division for a price of $500. The Southern Division is currently operating at capacity. Southern Division's unit variable cost is $240, unit fixed cost is $100, and unit selling price is $680. What is the minimum transfer price that the Southern Division should accept?

unit variable cost + lost unit contribution margin [$240 + ($680 - $240)] = $680 min. transfer price