Question

Use the excel document found in the Assignments tab to answer the questions below.

Part A: (1 mark)

Advent Company wants to introduce a new printer called the Blitzer. The company believes demand will be 10,000 units per year at a price of $50 per printer. Advent would invest $300,000 and requires a 50% return on their investment.

Calculate the target cost per unit for the new Blitzer printer.

Part B: (1 mark)

Growing Inc. manufactures growth charts. Growing Inc. has recently invested in a new machine that can individualize the picture displayed on the growth chart. They believe demand for this new type of growth chart will be 50,000 charts per year at $15 per chart. The machine will cost $500,000. They would like to earn 45% on this investment.

Calculate the total target cost for 50,000 units for the new style of growth chart.

Part C:

Talia Corp. produces digital cameras. For each camera produced, direct materials are $27, direct labour is $15, variable manufacturing overhead is $18, fixed manufacturing overhead is $32, variable selling and administrative expenses are $7, and fixed selling and administrative expenses are $22.

Calculate the target selling price assuming that a 40% markup on total per unit cost is required.

Answer 1

Part A: (1 mark)

Advent Company wants to introduce a new printer called the Blitzer. The company believes demand will be 10,000 units per year at a price of $50 per printer. Advent would invest $300,000 and requires a 50% return on their investment. Calculate the target cost per unit for the new Blitzer printer.

Total revenue = 10000 X 50 = $500,000

Investment = $300,000;

50% return on investment = $150,000

So profit = $150,000 = Revenue - costs

i.e. Costs = 500,000 - 150,000 = 350,000

So target cost per unit = 350,000/10,000 = $35

Part B: (1 mark)

Growing Inc. manufactures growth charts. Growing Inc. has recently invested in a new machine that can individualize the picture displayed on the growth chart. They believe demand for this new type of growth chart will be 50,000 charts per year at $15 per chart. The machine will cost $500,000. They would like to earn 45% on this investment. Calculate the total target cost for 50,000 units for the new style of growth chart.

Total revenue = 50000 X 15 = $750,000

Cost of machine = $500,000

45% on this investment = 45% X 500,000 = $ 225,000

Therefore, revenue - cost = profit implies 750,000 - cost = $225,000

Therefore, total target cost = $525,000

Part C: (3 marks)

Talia Corp. produces digital cameras. For each camera produced, direct materials are $27, direct labour is $15, variable manufacturing overhead is $18, fixed manufacturing overhead is $32, variable selling and administrative expenses are $7, and fixed selling and administrative expenses are $22. Calculate the target selling price assuming that a 40% markup on total per unit cost is required.

Direct material = $27

Direct labor = $15

Variable manufacturing overhead = $18

Fixed manufacturing overhead = $32

Variable selling and admin expense = $7

Fixed selling and admin expense = $22

So total cost = $121

Now markup = 40%

Markup % = (selling price - cost)/cost X 100

40 = (x-121)/121X100; let x be selling price

Therefore; x-121 = 40X121/100 = 48.4

Therefore x = $169.4