# SOLUTIONS Pricing TO BRIEF EXERCISES.docx - SOLUTIONS TO...

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SOLUTIONS TO BRIEF EXERCISESBRIEF EXERCISE 8.1In order to obtain a profit of R\$10 per drive, Olivera must set itstarget cost at R\$35 per drive (R\$45 – R\$10). It will then need to forma design team that will design a product that will meet qualityspecifications without exceeding the target cost.BRIEF EXERCISE 8.2Directmaterials........................................................................................12Direct labor...........................................................................................8Variablemanufacturingoverhead........................................................6Fixedmanufacturingoverhead............................................................14Variablesellinganadministrativexpenses...........................................4Fixedsellingandadministrativeexpenses...........................................12Total unit cost..............................................................................€56Total unit cost+(Markup percentage X Total unit cost)=Target selling price56+(30% X56)=72.80BRIEF EXERCISE 8.3ROI per unit=(Total investment X Desired ROI percentage)Number of units=(€10,000,000 X 12%)= €2450,000BRIEF EXERCISE 8.4The markup percentage would be:€30=18.75%€36 + €24 + €18 + €40 + €14 + €28
BRIEF EXERCISE 8.5The markup percentage is equal to Desired ROI per unit divided bytotal unit cost. The desired ROI per unit is computed as follows:Desired ROI per unit =HK\$15,000,000 X 20%= HK\$30010,000 unitsThe total unit cost is computed as follows:Total unit cost =HK\$11,000,000 + HK\$1,000,000= HK\$1,20010,000 unitsThe markup percentage is computed as follows:Desired ROI per unit=HK\$300= 25%Total unit costHK\$1,200BRIEF EXERCISE 8.6Rooney’s total bill would equal:(10.5 hours X \$42) + \$700 + (\$700 X 40%) = \$1,421BRIEF EXERCISE 8.7The minimum transfer price is equal to the division’s variable costplus its opportunity cost. The opportunity cost is equal to itscontribution margin on goods sold to external parties. Thus, theminimum transfer price in this case is:Minimum transfer price = ₤25 + (₤45 – ₤25) = ₤45.BRIEF EXERCISE 8.8

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