hw #4

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Exercise A-2 Absorption Costing Approach to Setting a Selling Price [LOA-2]

Martin Company is considering the introduction of a new product. To determine a selling price, the company has gathered the following information:

 

Number of units to be produced and sold each year		12,500
Unit product cost	$	40
Projected annual selling and administrative expenses	$	50,000
Estimated investment required by the company	$	440,000
Desired return on investment (ROI)		18	%

 

The company uses the absorption costing approach to cost-plus pricing.

 

Required:

1. Compute the markup required to achieve the desired ROI. ((Round your final answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

 

 2.

 

 

 

Problem A-4 The Economists' Approach to Pricing [LOA-1]

The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Vincent stamps depicting a common theme, such as the life of Princess Diana. The souvenir sheets are designed and printed for the postal service by Imperial Printing, a stamp agency service company in the United Kingdom. The souvenir sheets cost the postal service $1.10 each. St. Vincent has been selling these souvenir sheets for $9.00 each and ordinarily sells about 60,000 units. To test the market, the postal service recently priced a new souvenir sheet at $10.00 and sales dropped to 50,000 units.

Required:

1a. Calculate the contribution margin for sale price of $9.00 each or $10.00 each?

 3.

 

 

 

Problem B-5 Volume Trade-Off Decision; Managing the Constraint [LOB-2, LOB-3]

Sammamish Brick, Inc., manufactures bricks using clay deposits on the company’s property. Raw clays are blended and then extruded into molds to form unfired bricks. The unfired bricks are then stacked onto movable metal platforms and rolled into the kiln where they are fired until dry. The dried bricks are then packaged and shipped to retail outlets and contractors. The bottleneck in the production process is the kiln, which is available for 3,450 hours per year. Data concerning the company’s four main products appear below. Products are sold by the pallet.

 

 

	Traditional Brick	Textured Facing	Cinder Block	Roman Brick
Gross revenue per pallet	$881	$1,417	$680	$996
Contribution margin per pallet	$550	$  660	$400	$510
Annual demand (pallets)	135	155	145	195
Hours required in the kiln per pallet	10	10	4	6

 

No fixed costs could be avoided by modifying how much is produced of any product.

 

Required:

1a. Calculate the total hours required in the kiln to satisfy demand for all products