1.
Identify whether target costing or cost-plus pricing approach can be suitably considered as price-led costing.
2.
Determine Corporation L’s current selling price of item no. 8976.
3.
Identify the impact on cost, if the company wishes to meet the market price and retain its current rate of profit on sales.
4.
Identify whether the identification of costs as value added or non-value-added would help Corporation L in the given situation.
5.
Identify the way in which L Corporation would be forced to do with its markup on cost to remain competitive in the marketplace.
6.
Explain the statement “prices are the result of an interaction between market forces and costs in many industries”.
7.
Prepare a spreadsheet for requirement (2) and (3), if the direct material and direct labor unit are changed to $25 and $85 respectively.
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Managerial Accounting: Creating Value in a Dynamic Business Environment
- Required information [The following information applies to the questions displayed below] For many years, Leno Corporation has used a straightforward cost-plus pricing system, marking its goods up approximately 25 percent of total cost. The company has been profitable; however, it has recently lost considerable business to foreign competitors that have become very aggressive in the marketplace. These firms appear to be using target costing. An example of Leno's problem is typified by item no. 8976, which has the following unit-cost characteristics: Direct material Direct labor $110 240 Manufacturing overhead 160 Selling and administrative expenses 90 The going market price for an identical product of comparable quality is $650, which is significantly below what Leno is charging. Required: 1. Which of the two approaches could be aptly labeled price-led costing?arrow_forwardBarbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs. Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 200,000 70,000 20,000 $ 110,000 58,700 14,300 $ 73,000 T-2 $ 260,000 130,000 50,000 $ 80,000…arrow_forwardGreen Auto's Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which has no excess capacity, makes and sells this part for external customers at a variable cost of $19 and a selling price of $31. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $3. On the basis of this information, Southern would establish a transfer price of: $16. $19. $28. $31. None of the other answers are correct.arrow_forward
- The total cost formula for a company can be modeled by TC = 12570+ 50x where x represents the number of items sold. A formula for the company's total income is modeled with TR 80x, where a represents the number of items sold. This company will breakeven when its total costs equal its total income. - How many items must this company sell to breakeven? Answer:arrow_forwardAutoTech's Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which has no excess capacity, makes and sells this part for external customers at a variable cost of $19 and a selling price of $31. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $3. On the basis of this information, Southern would establish a transfer price of?arrow_forwardGold&Blue's Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which has no excess capacity, makes and sells this part for external customers at a variable cost of P19 and a selling price of P31. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by P3. On the basis of this information, Southern would establish a transfer price of: P20. P28. P23. P25.arrow_forward
- Morrisons Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price? a. The buying unit has excess capacity. b. The selling unit is operating at full capacity. c. Routine sales commissions and collection costs would be avoided. d. The profit centers managers are evaluated on the basis of unit operating income.arrow_forwardWhen prices are falling (deflation), which costing method would produce the highest gross margin for the following? Choose first-in, first-out (FIFO); last-in, first-out (LIFO); or weighted average, assuming that B62 Company had the following transactions for the month. Calculate the gross margin for each of the following cost allocation methods, assuming B62 sold just one unit of these goods for $400. Provide your calculations. A. first-in, first-out (FIFO) B. last-in, first-out (LIFO) C. weighted average (AVG)arrow_forwardMost businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point depend on the proportions in which the products are sold. Sales mix is the relative contribution of sales among various products sold by a firm. Assume that the sales of Jordan Incorporated for a typical year are as follows: Product Units Sold Sales Mix A 18,384 80% B 4,596 20 Total 22,980 100% Assume the following unit selling prices and unit variable costs: Product Selling Price Variable Cost Contribution Margin A $ 92 $ 77 $ 15 B 152 112 40 Fixed costs are $424,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales volume changes. Required: 1. Determine the breakeven point in total units and, for this breakeven point, calculate the number of units of A and B that must be sold. Use the weighted-average contribution margin approach.3.…arrow_forward
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