Williams Incorporated 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 53,500 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. Variable manufacturing Variable selling and administrative Facility-level fixed overhead Fixed selling and administrative Batch-level fixed overhead Total investment in product line Expected sales (units) Total Costs $ 4,673,000 848,650 2,338,875 668,495 353,000 22,343,000 53,500 Required: 1. Determine the price for the part using a markup of 31% of full manufacturing cost. 2. Determine the price for the part using a markup of 24% of full life-cycle cost. 3. Determine the price for the part using a desired gross margin percentage to sales of 44%. 4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 23%. 5. Determine the price for the part using a desired before-tax return on investment of 13%.
Williams Incorporated 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 53,500 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. Variable manufacturing Variable selling and administrative Facility-level fixed overhead Fixed selling and administrative Batch-level fixed overhead Total investment in product line Expected sales (units) Total Costs $ 4,673,000 848,650 2,338,875 668,495 353,000 22,343,000 53,500 Required: 1. Determine the price for the part using a markup of 31% of full manufacturing cost. 2. Determine the price for the part using a markup of 24% of full life-cycle cost. 3. Determine the price for the part using a desired gross margin percentage to sales of 44%. 4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 23%. 5. Determine the price for the part using a desired before-tax return on investment of 13%.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 2CMA: The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the...
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Transcribed Image Text:Williams Incorporated 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 53,500 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.
Variable manufacturing
Variable selling and administrative
Facility-level fixed overhead
Fixed selling and administrative
Batch-level fixed overhead
(6)
Total investment in product line
Expected sales (units)
Required:
1. Determine the price for the part using a markup of 31% of full manufacturing cost.
2. Determine the price for the part using a markup of 24% of full life-cycle cost.
3. Determine the price for the part using a desired gross margin percentage to sales of 44%.
4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 23%.
5. Determine the price for the part using a desired before-tax return on investment of 13%.
Total Costs
$ 4,673,000
848,650
2,338,875
668,495
353,000
22,343,000
53,500
Determine the total contribution margin and total operating profit for each of the methods in requirements 1 through 5. (Do
not round intermediate calculations.)
Method
Markup on full manufacturing cost
Markup on life cycle costs
Price to achieve desired GM %
Price to achieve desired LCC %
Price to achieve desired ROA of 13%
Contribution Margin
Operating Profit
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