Cost Management
Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
Question
100%
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Chapter 13, Problem 35E

1.

To determine

Calculate the price for the part using a markup of 45% of full manufacturing cost.

1.

Expert Solution
Check Mark

Explanation of Solution

Calculate the price for the part using a markup of 45% of full manufacturing cost as follows:

Price per part = [Total manufacturing cost (3)×(1+45%)]Expected sales in units=$7,385,875×1.4550,000 units=$214.1904

Working note (1):

Calculate the total variable cost.

Total variable cost = (Variable manufacturing cost+Variable selling and administrative cost)=$4,680,000+$855,650=$5,535,650

Working note (2):

Calculate the total fixed cost.

Total fixed costs = (Facility-level fixed overhead+Fixed selling and administrative+Batch-level fixed overhead)=($2,345,875+$675,495+$360,000)=$3,381,370

Working note (3):

Calculate the total manufacturing cost.

Total manufacturing cost }(Variable manufactuirng+Facility level fixed overhead+Batch-level fixed overhead)=($4,680,000+$2,345,875+$360,000)=$7,385,875

Working note (4):

Calculate the total selling and administrative.

Total selling and administrative}=[(Variable selling and administrative)+Fixed selling and administrative]=$855,650+$675,495=$1,531,145

Working note (5):

Calculate the total life cycle cost.

Total life cycle cost = (Total manufacturing cost (3)+Total selling and administrative (4))=$7,385,875+$1,531,145=$8,917,020

Working note (6):

Calculate the manufacturing cost per unit.

Manufacturing cost per unit} = Total manufacturing cost (3)Expected sales in units=$7,385,87550,000 units=$147.72

Working note (7):

Calculate the life cycle cost per unit.

Life cycle cost per unit} = Total life cycle cost (5)Expected sales in units=$8,917,02050,000 units=$178.34

2.

To determine

Calculate the price for the part using a markup of 25% of full life-cycle cost.

2.

Expert Solution
Check Mark

Explanation of Solution

Calculate the price for the part using a markup of 25% of full life-cycle cost as follows:

Price per part = [Total life-cycle cost (5)×(1+25%)]Expected sales in units=$8,917,020×1.2550,000 units=$222.9250

3.

To determine

Calculate the price for the part using a desired gross margin percentage to sales of 40%.

3.

Expert Solution
Check Mark

Explanation of Solution

Calculate the price for the part using a desired gross margin percentage to sales of 40% as follows:

Price per part = Manufacturing cost per unit (6)(1Desired profit percentage)=$147.72(140%)=$246.1960

4.

To determine

Calculate the price for the part using a desired life-cycle cost percentage to sales of 25%.

4.

Expert Solution
Check Mark

Explanation of Solution

Calculate the price for the part using a desired life-cycle cost percentage to sales of 25% as follows:

Price per part = Life cycle cost per unit (7)(1Desired profit percentage)=$178.34(125%)=$237.7867

5.

To determine

Calculate price for the part using a desired before tax return on investment of 15%.

5.

Expert Solution
Check Mark

Explanation of Solution

Calculate price for the part using a desired before tax return on investment of 15%t as follows:

Price per part = (Life cycle cost per unit (7)×(1+Total investment rate))=$178.34×(10.3760)=$245.3905

Working note (8):

Calculate the total investment rate.

Total investment rate = (Total investment in product line×Desired return on investment)(Expected sales in units×Life cycle cost per unit (7))=$22,350,000×15%(50,000 units×$178.34)=0.3760

6.

To determine

Calculate the contribution margin and operation profit for each method and choose the appropriate price.

6.

Expert Solution
Check Mark

Explanation of Solution

Calculate the contribution margin and operation profit for each method and choose the appropriate price as follows:

Cost Management, Chapter 13, Problem 35E , additional homework tip  1

Table (1)

Excel workings:

Cost Management, Chapter 13, Problem 35E , additional homework tip  2

Table (1)

Price to achieve desired ROA of 15% is better price for the company, because the operating profit from this price is more than the other.

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