Chapter 9 - Solutions to Selected Problems Part B - SOLUTIONS TO PROBLEMSSET A PROBLEM 9-34A(a Total variable costs Materials Labour Indirect

# Chapter 9 - Solutions to Selected Problems Part B -...

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Solution to Problems Chapter 9 - Pricing SOLUTIONS TO PROBLEMS—SET A PROBLEM 9-34A (a) Total variable costs Materials \$200,000 Labour 320,000 Indirect manufacturing costs 120,000 Variable marketing costs 40,000 \$680,000 Total fixed costs Fixed indirect costs \$160,000 Administrative costs 80,000 \$240,000 Unit price = (\$680,000 + \$240,000) ÷ 4,000 = \$230 Proof: [\$230 + (\$230 × 0.20)] × 500 = \$138,000 (b) Total variable manufacturing costs Materials \$200,000 Labour 320,000 Indirect manufacturing costs 120,000 \$640,000 Unit price = \$640,000 ÷ 4,000 = \$160 Proof: [\$160 + (\$160 × 0.20)] × 500 = \$96,000 (c) With a capacity of 9,000 units, and regular production of only 4,000 units, AGC has plenty of excess capacity to produce the windshields for the transit authority. Their incremental cost of production in this case would be equal to the variable cost of producing the units, which is \$160. However, they will want to earn some profit on the sale, so they would need to charge more than \$160. On the other hand, the transit authority is not prepared to pay for costs that have not been incurred, so will reject the \$230 amount. The most appropriate cost should be somewhere in between the two extremes. P a g e   1 | 8
Solution to Problems Chapter 9 - Pricing PROBLEM 9-35A (a) Total variable cost per unit Direct materials \$12 Direct labour 18 Variable manufacturing overhead 10 Variable S&A expenses 7 \$47 Total fixed costs Fixed manufacturing overhead \$3,000,000 Selling and admin expenses 2,000,000 \$5,000,000 Per unit fixed cost = \$5,000,000 ÷ 250,000 = \$20 Total cost per unit = \$47 + \$20 = \$67 (b) Markup = \$67 × 20% = \$13.40 (c) Target selling price = \$67.00 + \$13.40 = \$80.40 (d) Per unit variable cost = \$47 (same as above) Per unit fixed cost = \$5,000,000 ÷ 200,000 = \$25.00 Total cost per unit = \$47.00 + \$25.00 = \$72.00 P a g e   2 | 8
Solution to Problems Chapter 9 - Pricing PROBLEM 9-36A (a) (1) The minimum selling price that would not affect net income would be equal to the variable cost per unit.

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• Spring '09
• HOFFMAN
• Accounting, Pricing, Problems chapter, washer division, Variable S&A Expenses