Session 16 Solutions

Session 16 Solutions - Example: (P12-24 from the text)...

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Example: (P12-24 from the text) Waterbury Inc., manufactures and sells RF17, a specialty raft used for whitewater rafting. In 2007, it reported the following: 20% Rate of return on investment $300 Full cost per unit $2,400,000 Investment 50% Markup on variable cost 20,000 Units produced and sold
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1) What was the selling price for 2007? 300 Full cost per unit $324 Selling price per unit $ 24 = 20,000 = 2,400,000 x 20% Income earned in 2007 per unit 2) What was the percentage markup on full cost? 8% 300 = 24 = Percentage markup on full cost Cost-Plus Pricing Remember Price = Cost + Profit
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3) What was the variable cost per unit? (1.5) $216 = 324 = V = 324 V x (1 + 0.5) = P Percentage markup on variable cost = 50%
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Target Pricing Waterbury is considering raising its selling price to $348. However, at this selling price, its sales volume is predicted to fall by 10%. If Waterbury’s cost structure (total fixed costs and variable costs per unit) remain unchanged, should it raise its selling price? a)
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Session 16 Solutions - Example: (P12-24 from the text)...

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