Solutions_Assignment09

Solutions_Assignment09 - AF2110 Assignment09(suggested...

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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

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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.
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Solutions_Assignment09 - AF2110 Assignment09(suggested...

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