Question

UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics:

Design Specifications	ICU 100			ICU 900			Cost Data
Video cameras		1			3		$	150	/ea
Video monitors		1			1		$	75	/ea
Motion detectors		5			8		$	15	/ea
Floodlights		3			7		$	8	/ea
Alarms		1			2		$	15	/ea
Wiring		700	ft.		1,100	ft.	$	0.10	/ft.
Installation		16	hr		26	hr	$	20	/hr

The ICU 100 sells for $810 installed, and the ICU 900 sells for $1,520 installed.

Required:

1. What are the current profit margin percentages on both systems?

2. UR Safe’s management believes that it must drop the price on the ICU 100 to $750 and on the ICU 900 to $1,390 to remain competitive in the market. Recalculate profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current profit margin percentages.

Answer 1

1	Calculation of Cost per unit
S.No	Particulars	ICU100	ICU900
1	Video Cameras(1*150:3*150)	150	450
2	Video Monitors(1*75:1*75)	75	75
3	Motion Detectors(5*15:8*15)	75	120
4	Floodlights(3*8:7*8)	24	56
5	Alarms(1*15:2*15)	15	30
6	Wiring(700*.10:1100*.10)	70	110
7	Installation(16*20:26*20)	320	520
8	Total Cost	729	1361
9	Selling Price	810	1520
10	Profit Margin(9-8)	81	159
11	Profit Margin in % (Profit Margin/Selling Price)	10%	10.46%
	(81/810:159/1520)
2	Calculation Of Target Cost
S.No	Particulars	ICU100	ICU900
1	Selling price	750	1390
2	Cost/Target Cost	729	1361
3	Profit Margin	21	29
4	Profit margin in %	2.8%	2.09%