# Lo 3 type a n answer a the companys total cost is

• Notes
• 44
• 96% (126) 121 out of 126 people found this document helpful

This preview shows page 25 - 28 out of 44 pages.

##### We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
The document you are viewing contains questions related to this textbook.
Chapter 9 / Exercise 8
ECON MICRO
McEachern
Expert Verified
LO: 3 Type: A, N Answer: A. The company's total cost is \$10,400,000 [(40,000 units x \$200) + \$2,400,000], resulting in sales revenue of \$14,200,000 (\$10,400,000 + \$3,800,000). The selling price is therefore \$355 (\$14,200,000 ÷ 40,000 units). B. The total cost per unit is \$260 [\$200 + (\$2,400,000 ÷ 40,000 units)], resulting in a \$95 markup (\$355 - \$260). Each unit is thus marked up by 36.54% of total cost (\$95 ÷ \$260). C. Because the base for computing the markup is smaller, the percentage markup must increase to produce the same sales price. The markup on variable cost must equal \$155 to derive a \$355 selling price (\$355 - \$200), or 77.5% (\$155 ÷ \$200). The net result is a hike of 40.96% (77.50% - 36.54%).
Chapter 15 210
##### We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
The document you are viewing contains questions related to this textbook.
Chapter 9 / Exercise 8
ECON MICRO
McEachern
Expert Verified
Straightforward Target Costing, Value Engineering 71. Argosy, Inc., uses target costing and will soon enter a very competitive marketplace in which it will have limited influence over the prices that are charged. Management and consultants are working to fine-tune the company's sole service, which hopefully will generate a 12% return (profit) on the firm's \$24,000,000 asset investment. The following information is available: Hours of service to be provided: 34,000 Anticipated variable cost per service hour: \$30 Anticipated fixed cost: \$2,560,000 per year Required: A. How much profit must Argosy produce to achieve a 12% return? B. Calculate the revenue per hour that Argosy must generate to achieve a 12% return. C. Assume that prior to entering the marketplace, management conducted a planning exercise to determine whether a 14% return could be attained in year no. 2 . Can the company achieve this return if (a) competitive pressures dictate a maximum selling price of \$195 per hour and (b) service hours, variable cost per service hour, and fixed costs are the same as the amounts anticipated in year no. 1? Show calculations. D. If your answer to part "C" is "no," suggest and briefly describe a procedure that Argosy might use to achieve desired results. LO: 5, 8 Type: A, N Answer: A. Argosy's target profit is \$2,880,000 (\$24,000,000 x 12%). B. Total revenues must be sufficient to cover costs and produce the target profit. Thus, revenues equal \$6,460,000 [(34,000 hours x \$30) + \$2,560,000 + \$2,880,000]. The revenue per hour must be \$190 (\$6,460,000 ÷ 34,000 hours). C. Argosy's target profit is \$3,360,000 (\$24,000,000 x 14%). Total revenues must equal \$6,940,000 [(34,000 hours x \$30) + \$2,560,000 + \$3,360,000], and the revenue per hour must be \$204.12 (\$6,940,000 ÷ 34,000 hours). No. A 14% return requires that Argosy produce revenue per service hour of \$204.12, which is in excess of the \$195 maximum market price. D. To achieve a 14% return and a \$195 revenue-per-hour figure, the company must trim its costs. Argosy could use value engineering, a technique that utilizes information collected about a service's design and associated processes. The goal is to examine the design and processes and then identify improvements that would produce cost savings.
211 Hilton, Managerial Accounting, Seventh Edition
Analysis of Business Decision; Target Costing 72. Ratner and Associates develops hotels in resort locations. The company is exploring the construction of a new facility that would have significant meeting and banquet space for conventions and conferences, and sleeping rooms that average 850 square feet. The accounting department estimates that land and building costs will amount to \$60 and \$120 per