Pricing Williams Inc. produces a single product, a part used in the manufacture of automobiletransmissions. Known for its quality and performance, the part is sold to luxury auto manufacturersaround the world. Because this is a quality product, Williams has some flexibility in pricing the part.The firm calculates the price using a variety of pricing methods and then chooses the final price based onthat information and other strategic information. A summary of the key cost information follows. Williamsexpects to manufacture and sell 50,000 parts in the coming year. While the demand for Williams’s parthas been growing in the past 2 years, management is not only aware of the cyclical nature of the automobile industry, but also concerned about market share and profits during the industry’s current downturn.[LO 13-3][LO 13-4]Required (round prices to 4 decimal places)1. Determine the price for the part using a markup of 45% of full manufacturing cost.2. Determine the price for the part using a markup of 25% of full life-cycle cost.3. Determine the price for the part using a desired gross margin percentage to sales of 40%.4. Determine the price for the part using a desired life-cycle cost percentage to sales of 25%.5. Determine the price for the part using a desired before-tax return on investment of 15%.6. Determine the contribution margin and operating profit for each of the methods in requirements 1through 5. Which price would you choose, and why? Total CostsVariable manufacturing $ 4,680,000Variable selling and administrative 855,650Facility-level fixed overhead 2,345,875Fixed selling and administrative 675,495Batch-level fixed overhead 360,000Total investment in product line 22,350,000Expected sales (units) 50,000
Pricing Williams Inc. produces a single product, a part used in the manufacture of automobile
transmissions. Known for its quality and performance, the part is sold to luxury auto manufacturers
around the world. Because this is a quality product, Williams has some flexibility in pricing the part.
The firm calculates the price using a variety of pricing methods and then chooses the final price based on
that information and other strategic information. A summary of the key cost information follows. Williams
expects to manufacture and sell 50,000 parts in the coming year. While the demand for Williams’s part
has been growing in the past 2 years, management is not only aware of the cyclical nature of the automobile industry, but also concerned about market share and profits during the industry’s current downturn.
[LO 13-3]
[LO 13-4]
Required (round prices to 4 decimal places)
1. Determine the price for the part using a markup of 45% of full
2. Determine the price for the part using a markup of 25% of full life-cycle cost.
3. Determine the price for the part using a desired gross margin percentage to sales of 40%.
4. Determine the price for the part using a desired life-cycle cost percentage to sales of 25%.
5. Determine the price for the part using a desired before-tax return on investment of 15%.
6. Determine the contribution margin and operating profit for each of the methods in requirements 1
through 5. Which price would you choose, and why?
Total Costs
Variable manufacturing $ 4,680,000
Variable selling and administrative 855,650
Facility-level fixed
Fixed selling and administrative 675,495
Batch-level fixed overhead 360,000
Total investment in product line 22,350,000
Expected sales (units) 50,000
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