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Unformatted text preview: CHAPTER 8 Pricing Homework Solutions ANSWERS TO QUESTIONS (3, 5, 9, 12) 3. The basic formula to determine the target selling price in costplus pricing is: Target selling price = Cos t + (Markup percentage X Cost) 5. The basic formula to compute the markup percentage is: Markup percentage = Desired ROI per unit Total unit cost 9. Timeandmaterial pricing is most often used in service industries. It involves two pricing rates, one for the labor used on a job, while the other involves the materials used. Each typically has a profit rate factored into it. 12. The objective of an appropriate transfer price is to maximize the return to the whole company and not cause divisional performance to decline. SOLUTIONS TO BRIEF EXERCISES (2, 4, 6, 7) BRIEF EXERCISE 82 Direct materials........................................................................................... $12 Direct labor.................................................................................................. 8 Variable manufacturing overhead............................................................. 6 Fixed manufacturing overhead................................................................. 14 Variable selling and administrative expenses......................................... 4 Fixed selling and administrative expenses............................................. 12 Total unit cost...................................................................................... $56 Total unit cost + (Markup percentage X Total unit cost) = Target selling price $56 + (32% X $56) = $73.92 BRIEF EXERCISE 84 The markup percentage would be: $30 = 18.52% $36 + $24 + $18 + $42 + $14 + $28 BRIEF EXERCISE 86 Chudzick’s total bill would equal: (10.5 hours X $45) + $700 + ($700 X 40%) = $1,452.50 BRIEF EXERCISE 87 The minimum transfer price is equal to the division’s variable cost plus its opportunity cost. The opportunity cost is equal to its contribution margin on goods sold to external parties. Thus, the minimum transfer price in this case is: Minimum transfer price = $19 + ($42 – $19) = $42. SOLUTIONS TO DO IT! REVIEW EXERCISES (1, 3, 4) DO IT! 81 The desired profit for this new product line is $400,000 ($2,000,000 X 20%) Each filter must result in $.40 of profit ($400,000/1,000,000 units) Market price – Desired profit = Target cost per unit $3 – $.40 = $2.60 per unit DO IT! 83 Total Cost / Total Hours = Per Hour Charge Repairtechnicians’ wages $120,000 5,000 $24.00 Fringe benefits 40,000 5,000...
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 Spring '08
 PIKE
 Financial Accounting, Pricing

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