W Ch 14 in class exercises Nov_24doc

W Ch 14 in class exercises Nov_24doc - 1 Howard Robinson...

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1. Howard Robinson builds custom homes in Cincinnati. Robinson was approached not too long ago by a client about a potential project, and he submitted a bid of $483,800, derived as follows: Robinson adds an 18% profit margin to all jobs, computed on the basis of total cost. In this client's case the profit margin amounted to $73,800 ($410,000 x 18%), producing a bid price of $483,800. Assume that 70% of construction overhead is fixed. Required: (A.) Suppose that business is presently very slow, and the client countered with an offer on this home of $390,000. Should Robinson accept the client's offer? Why? (B.) If Robinson has more business than he can handle, how much should he be willing to accept for the home? Why? (A.) A relevant cost analysis shows that the home is still profitable at $390,000, and the offer should be accepted. Keep in mind that business is very slow. (B.) Since demand is very strong, Robinson should hold firm to the $483,800 price. This way he can cover all of his costs and make his normal 18% profit margin.
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reviewing financial reports of her company's attempt to offer a reduced-price daycare service to employees. The daycare's financial figures for the year just ended follow. If the daycare service/center is closed, 70% of the traceable fixed cost will be avoided. In addition, the company will incur one-time closure costs of $6,800. Required: (A.) Show calculations that support Kara Whitmore's belief that the daycare center lost almost $40,000. (B.) Should the center be closed? Show calculations to support your answer.
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W Ch 14 in class exercises Nov_24doc - 1 Howard Robinson...

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