Question

You are given the following questions, but not required to solve them for numbers. Instead, please read them carefully and follow the instructions to complete each requirement. 1) Stoneycreek golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $40 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20 million for the golfing season. About 500,000 golfers are expected each year. Variable costs are about $12 per golfer. The Stoneycreek course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Based on these numbers, what is Stoneycreek's target revenue? Requirements: 1) Which pricing approach should Stoneycreek use and why? 2) List ONLY the relevant information to solve the problem; and use a graphic organizer, such as flowcharts and tables to show how to solve the problem.

2) The following information relates to current production of outdoor chaise lounges at Backyard Posh: Variable manufacturing costs per unit $106 Total fixed manufacturing costs $565,000 Variable marketing and administrative costs per unit $34 Total fixed marketing and administrative costs $250,000 The regular selling price per chaise lounge is $290. The company is analyzing the opportunity to accept a special sales order for 1200 chaise lounge at a price of $210 per unit. Fixed costs would remain unchanged. The company has the capacity to produce 55,000 chaise lounges per year, but is currently producing and selling 9000 chaise lounges per year. The 1200 units would not require any variable marketing and administrative expenses. Regular sales will not be affected by the special order. If the company were to accept this special order, how would operating income be affected? Requirements: 1) List ONLY the relevant information to solve the problem; and use a graphic organizer, such as flow charts and tables, to show how to solve the problem.

Answer 1

Ans to Q1.

The Stoneycreek course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Therefore, Stoneycreek can earn the desired profit by setting sale price using Marginal Costing approach.

Relevant Information is:-

Desired Return = $40*12% = $4.80m

Fixed Cost = $20 m

Variable Cost = $12 per golfer

Expected Sale (units) = 500,000

Target Revenue and Sales Price

Particulars	Amount ($) in Millions
Desired Return	4.80
Fixed Cost	20.00
Total Contribution required	24.80
No of Units to be Sold	0.5
Contribution per Unit	$49.60
variable Cost per Unit	$12.00
Sale Price per Unit	$61.60

Ans. to Q2

Relevant information:

In the given problem, company has capacity to produce 55,000 units. However current production is 9,000 units. Therefore, company has idle capacity for 46,000 units. The Company has received special order for 1,200 units. Therefore, In such casev only variable cost is relevant and fixed cost is irrelevant.

Variable Manufacturing Cost = $106 per unit

Variable Marketing and Administrative Cost = $34 per unit

Sale Price for Special Order = $210

Specail order Size = 1,200 units

Income From Special Order
Particulars	Amount ($)
Sales Revenue	252,000
(1,200 * $210)
Less: Variable Cost
Manufacturing	127,200
(1,200 * $106)
Marketing and Administrative	40,800
(1,200 * $34)
Incremental Profit	84,000