Solutions_Assignment09 - AF2110 Assignment09(suggested...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
AF2110 Assignment09 (suggested solutions) Exercise A-3 (10 minutes) Sales (50,000 batteries × $65 per battery) . ..... $3,250,000 Less desired profit (20% × $2,500,000) . ........ 500,000 Target cost for 50,000 batteries . ..................... $2,750,000 Target cost per battery = ($2,750,000 ÷ 50,000 batteries) = $55 per battery Problem A-4 (30 minutes) 1. a. Number of jackets manufactured each year: 21,000 labor-hours ÷ 1.4 labor-hours per jacket = 15,000 jackets. Selling and administrative expenses: Variable (15,000 jackets × $4 per jacket) . ..... $ 60,000 Fixed . .......................................................... 474,000 Total . ........................................................... $534,000 ( ) ( ) Required ROI Selling and administrative + ? Investment expenses Markup percentage = on absorption cost Unit product cost nit sales 24% ? $900,000 + $534,000 = $40 per jacket ? 15,000 jackets $750,000 = $600,0 00 = 125% b. Direct materials. .............................................. $ 9.20 Direct labor. .................................................... 14.00 Manufacturing overhead . ................................. 16.80 Unit product cost . ........................................... 40.00 Add markup: 125% of unit product cost . .......... 50.00 Target selling price . ......................................... $90.00
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
AF2110 Assignment09 (suggested solutions) Problem A-4 (continued) c. The income statement is: Sales (15,000 jackets × $90 per jacket) . .. $1,350,000 Cost of goods sold (15,000 jackets × $40 per jacket) . ........ 600,000 Gross margin . ......................................... 750,000 Selling and administrative expenses: Shipping . ............................................. $ 60,000 Salaries . .............................................. 90,000 Advertising and other . .......................... 384,000 Total selling and administrative expense . .. 534,000 Net operating income . ............................. $ 216,000 The company’s ROI computation for the jackets is: Net operating income Sales ROI = ? Sales Average operating assets $216,000 $1,350,000 = ? = 16% ? 1.5 = 24% $1,350,000 $900,000 2. Variable cost per unit: Direct materials . ...................................................... $ 9.20 Direct labor . ............................................................ 14.00 Variable manufacturing overhead (1/6 × $16.80) . ...... 2.80 Shipping expense . .................................................... 4.00 Total variable cost per unit . ...................................... $30.00 If the company has idle capacity and sales to the retail outlet wou ld not affect the company’s regular sales, any price above the variable cost of $30 per jacket would add to profits. The company should aggressively bargain for more than this price; $30 is simply the rock bottom below which the company should not go in its pricing.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/20/2010 for the course AD abc123 taught by Professor Cat during the Summer '09 term at City University of Hong Kong.

Page1 / 10

Solutions_Assignment09 - AF2110 Assignment09(suggested...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online