Question

Stepford Paints makes and sells paint to home improvement stores. Stepford​'s only plant can produce up to 19 million cans of paint per year. Current annual production is 15 million cans. Fixed​ manufacturing, selling, and administrative costs total $27 million per year. The variable cost of making and selling each can of paint is $6.10. Stockholders expect a 20​% annual return on the​ company's $38 million of assets.

1.	What is Stepford​'s current total cost of making and selling 15 million cans of​paint? What is the current cost per can of​ paint?
2.	Assume that Stepford is a​ price-taker and the current wholesale market price is $8.60 per can of paint. What is the target total of cost in producing and selling 15 million cans of​ paint? Given Stepford​'s current total​ costs, will the company reach​ stockholders' profit​ goals?
3.	Continuing with Requirement​ 2, let's say that Stepford has found ways to reduce its total fixed costs by $310,000. What is the target variable cost per can of​ paint?
4.	Suppose Stepford plans to spend an additional $1.9 million on advertising to differentiate its product in order to increase sales volume to 16 million cans and become more of a​ price-setter. Assume that Stepford did reduce its total fixed costs by $310,000 as stated in Requirement 3 but could not find ways to save on its variable costs. What is the​ cost-plus price for a can of paint under these​conditions?

Requirement 1. What is Stepford​'s current total cost of making and selling 15 million cans of​ paint? What is the current cost per can of​ paint? Select the formula labels and enter the amounts to calculate Stepford​'s current total cost and current cost per can of paint. ​(Enter currency amounts in​ dollars, not in millions. Enter unit values as whole​ numbers, not in millions. Round all currency amounts to the nearest whole dollar and round the cost per unit to the nearest​ cent, $X.XX.)

Plus:
Divided by:
Total cost per unit

Requirement 2. Assume that Stepford is a​ price-taker and the current wholesale market price is $8.60 per can of paint. What is the target total of cost in producing and selling 15 million cans of​ paint? Given Stepford​'s current total​ costs, will the company reach​ stockholders' profit​ goals? Begin by calculating Stepford​'s target total cost. Select the formula labels and enter the amounts. ​(Enter currency amounts in​ dollars, not in millions. Round all currency amounts to the nearest whole​ dollar.)

Less:
Target total cost

Given

StepfordStepford​'s

current total​ costs, will the company reach​ stockholders' profit​ goals? ​(Enter currency amounts in​ dollars, not in​ millions.)

, the company

reach stockholders' profit goals. There will be a(an) $

.

Requirement 3. Continuing with Requirement​ 2, let's say that Stepford has found ways to reduce its total fixed costs by $310,000. What is the target variable cost per can of​ paint? Select the formula labels and enter the amounts to calculate Stepford​'s target variable cost per can of paint. ​(Enter currency amounts in​ dollars, not in millions. Enter unit values as whole​ numbers, not in millions. Round cost per unit amounts to the nearest​ cent, $X.XX.)

Less:
Divided by:

Requirement 4. Suppose Stepford plans to spend an additional $1.9 million on advertising to differentiate its product in order to increase sales volume to 16 million cans and become more of a​ price-setter. Assume that Stepford did reduce its total fixed costs by $310,000 as stated in Requirement 3 but could not find ways to save on its variable costs. What is the​ cost-plus price for a can of paint under these​ conditions? Select the formula labels and enter the amounts to calculate Stepford​'s ​cost-plus price for a can of paint under these conditions. ​(Enter currency amounts in​ dollars, not in millions. Round cost per unit amounts to the nearest​ cent, $X.XX.)

Current total costs
Plus:
Divided by:
Cost-plus price per unit

Answer 1

Req 1: Number of Units to be sold: 15 Million cans
Variable cost (15000,000 cans @$ 6.10)				91,500,000
Add: fixed cost				27,000,000
Total cost				118,500,000
Divide: Number of Units				15,000,000
Total cost per unit				7.9
Req 2: Total target Cost:
Sales revenue (15000,000 units @$ 8.60)				129,000,000
Less: target Profits(38000,000*20%)				7,600,000
Target total cost				121,400,000
Yes, the company current total cost reach the stockholder's profit goals.
There will be an $2900,000 additional profit.
Req 3:
Total target cost:				121,400,000
Less: fixed cost (27000,000-310,000)				26690000
Target total variable cost				94,710,000
Divide: Number of units				15,000,000
Target variable cost per unit				6.314
Req 4:
Variable cost (16000,000 units @6.10)				97600000
Add: Fixed cost (27000,000+1900,000-310000)				28590000
Total Current cost				126190000
Add; target profits				7600000
($38000,000*20%)
Total Sales required				133790000
Divide: Number of units				16,000,000
Cost plus price per units				8.36