RooPhone Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units of cellular phones are as follows:   (7 points)

Variable costs                                                  Fixed Costs:

Direct materials    $625,000                     Factory overhead                     $215,000

Direct labor                     225,000                    Selling & Admin. expenses          75,000

Factory Overhead           200,000

Selling & admin. Exp.    150,000

                                    $1,200,000

RooPhone desires a profit equal to a 18% rate of return on invested assets of $550,000.

Required:

a.) Determine the amount of desired profit.

b.) Determine the product cost per unit for the production of 5,000 phones.

c.) Determine the total cost markup percentage (e.g. 20%) using the product cost concept.

d.) Determine the selling price of each cellular phone. Round to nearest dollar.

RooPhone Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units of cellular phones are as follows: (7 points) Variable costs Fixed Costs: Direct materials $625,000 Factory overhead $215,000 Direct labor 225,000 Selling & Admin. expenses 75,000 Factory Overhead 200,000 Selling & admin. Exp. 150,000 $1,200,000 RooPhone desires a profit equal to a 18% rate of return on invested assets of $550,000. Required: a.) Determine the amount of desired profit. b.) Determine the product cost per unit for the production of 5,000 phones. c.) Determine the total cost markup percentage (e.g. 20%) using the product cost concept. d.) Determine the selling price of each cellular phone. Round to nearest dollar.

La Femme Accessories Inc. produces women's handbags. The cost of producing 1,240 handbags is as follows: Direct materials $14,300 Direct labor 8,500 Factory overhead 6,000 Total manufacturing cost $28,800 The selling and administrative expenses are $28,900. The management desires a profit equal to 14% of invested assets of $496,000. If required, round your answers to nearest whole number. a. Determine the amount of desired profit from the production and sale of 1,240 handbags. $ b. Determine the product cost per unit for the production of 1,240 handbags. $ per unit c. Determine the product cost markup percentage for handbags. % d. Determine the selling price of handbags. Round your answers to nearest whole value. Cost $ per unit Markup $ per unit Selling price $ per unit

La Femme Accessories Inc. produces women's handbags. The cost of producing 1,180 handbags is as follows:

The selling and administrative expenses are $27,400. The management desires a profit equal to 18% of invested assets of $498,000.

If required, round your answers to nearest whole number.

a. Determine the amount of desired profit from the production and sale of 1,180 handbags.
$

b. Determine the product cost per unit for the production of 1,180 handbags.
$per unit

c. Determine the product cost markup percentage for handbags.
%

d. Determine the selling price of handbags. Round your answers to nearest whole value.

Miso Computer produces computer parts and buys platinum from one of its suppliers. Each part carries 1 ounce of copper. Annual demand for parts follows a normal distribution with an average of 7000 parts and a standard deviation of 2000. The copper supplier takes 5 weeks to deliver the material after the order is placed. Miso uses 40% annual interest to compute the cost of maintaining inventory. Copper buys it at $0.25 per ounce. The company uses a short material cost of $25 per ounce of copper and putting an order to the supplier costs $80. Note: Show off 52 weeks in a year. Careful with unit conversion.

a) Suppose Miso is interested in the decision to ensure that 85% of cycles meet all demand:
i.  What should be the lot size? (whole number):
ii.   And the size of the reorder point? (whole number):

b) Assume that you want to calculate the average total cost of annual inventory, including setup, material maintenance cost, and short cost; provide the individual values for each of these terms (two decimal places, annually):
i. "Setup":
ii. Keeping the material:
iii. Costos por cortos de material:

c)   What type 1 service level are you guaranteeing with the system in part a? (provide service level in percentage terms, two significant decimal places):

d) What type 2 service level are you guaranteeing with the system in part a? (provide service level in percentage terms, two significant decimal places):

3. Inflation a) What is the difference between real and nominal GDP? _______________________________________________________________ _______________________________________________________________

b) Suppose the base year is 2005, and the only goods in the economy are apples and bananas. In 2005 both apples and bananas cost $1, and 100 apples and 100 bananas are produced. In 2006, apples cost $20 and bananas cost $5, and 50 apples and 200 bananas are produced.

1. What is nominal GDP in 2005? _______ In 2006? _______ 2. What is real GDP in 2005? _______ In 2006? _______

3. What is the GDP deflator in 2005? _______ In 2006? _______

4. Suppose the fixed basket of goods is 1 apple and 2 bananas. 5. What is the level of the CPI in 2005? _______ In 2006? _______ 6. What is the CPI inflation rate from 2005 to 2006? _______

c) What are the three effects that bias the measurement of CPI? i. _____________________ ii. _____________________ iii. _____________________

d) Which of the three effects listed in part c does each of the following illustrate? 1. US households in 2010 spent a larger fraction of their income on televisions than they did in 1950. __________________________ 2. All televisions available in 2010 had higher resolution than any televisions available in 1950. __________________________ 3. In 1950, no US household had a plasma screen television, but in 2010 they are widely available. __________________________

e) Suppose the average television purchased in 1950 cost $200, and the average television purchased today costs $700.

1. What is the percentage change in the average television price? _______

2. Taking into account the effects in part c, is this percentage increase likely an underestimate or overestimate of the true change in the cost of televisions? ____________

3. Why? ____________________________________________________

Montana Fishing Equipment Company (MFEC) manufactures a variety of fly-fishing equipment, including fly-fishing rods and reels. The company would like to develop a unified approach to pricing its product line for next year using cost-plus pricing but does not know what cost base should be used.

          Last year, MFEC earned $140,000 of profit from sales of its products and would like to earn $200,000 next year. Last year, the company incurred the following costs

       Manufacturing Costs

                                   Variable     $250,000

                                   Fixed     $150,000

                       Selling and Administrative Costs

                                   Variable     $100,000

                                   Fixed     $200,000

Required

A. Calculate the markup percentage for each of the following cost bases:

a. Full costs, including all manufacturing and selling and administrative costs

b. Cost of goods sold

c. Total variable costs

d. Variable manufacturing costs

B. Explain why the markup percentage calculated in question A is lower when using full costs as the base than when using variable manufacturing costs as the base.

C. MFEC’s best fly rod (the Trout Catcher model) costs $150 to manufacture and includes $90 of variable manufacturing costs and $60 of fixed overhead costs. Assuming the company uses a markup on variable manufacturing costs (calculated from A.d.), what is the recommended sales price of the rod?

Competitors sell comparable fly rods for $299. Based on this information, should MFEC price the Trout Catcher model by using a cost-plus approach of a

1) Use an Excel spreadsheet to evaluate the Pear Computer Company proposal. 2) Conduct a sensitivity analysis that focuses on the cost of capital. For a best case scenario, decrease the cost of capital by three percentage points. For a worst case scenario, increase the cost of capital by three percentage points. 3) You must provide one spreadsheet for each of the three situations—the base case estimate, the best case, and the worst case. 4) What do you recommend? Explain. You may type your recommendation and explanation on the Excel sheet.

Pear Computer’s research and development (R&D) department has developed a proposal for a new generation of tablet-sized computers. 1. Project’s useful life: 4 years. 2. Capital expenditures: $25,000,000. 3. Depreciation: straight-line over 4 years. 4. Sales: 25000 units in year 1, 95,000 in year 2, 70,000 in year 3, 25,000 in year 4. The sales price is expected to remain constant at $580. 5. Cost of goods sold (not counting depreciation): 60% of sales. 6. Selling, general and administrative expenses: $1,500,000 the first year, $1,750,000 the second year, $1,000,000 the third, and $500,000 the 4th . 7. R&D: $1,500,000 spent one year ago. 8. Initial investment in net working capital: $1,250,000. Then it increases by $10,000 for each of three years and finally is fully recovered in the final year. 9. Tax rate: 38%. 10. Cost of Capital: 14%

Evaluate the Pear Computer Company proposal.

2) Conduct a sensitivity analysis that focuses on the cost of capital. For a best case scenario, decrease the cost of capital by three percentage points. For a worst case scenario, increase the cost of capital by three percentage points.

3) You must provide one spreadsheet for each of the three situations—the base case estimate, the best case, and the worst case.

4) What do you recommend? Explain. You may type your recommendation and explanation on the Excel sheet. Pear Computer’s research and development (R&D) department has developed a proposal for a new generation of tablet-sized computers.

1. Project’s useful life: 4 years.

2. Capital expenditures: $25,000,000.

3. Depreciation: straight-line over 4 years.

4. Sales: 25000 units in year 1, 95,000 in year 2, 70,000 in year 3, 25,000 in year 4. The sales price is expected to remain constant at $580.

5. Cost of goods sold (not counting depreciation): 60% of sales.

6. Selling, general and administrative expenses: $1,500,000 the first year, $1,750,000 the second year, $1,000,000 the third, and $500,000 the 4th .

7. R&D: $1,500,000 spent one year ago.

8. Initial investment in net working capital: $1,250,000. Then it increases by $10,000 for each of three years and finally is fully recovered in the final year.

9. Tax rate: 38%.

10. Cost of Capital: 14%.

1) Use an Excel spreadsheet to evaluate the Pear Computer Company proposal (info below).
2) Conduct a sensitivity analysis that focuses on the cost of capital. For a best case scenario, decrease the cost of capital by three percentage points. For a worst case scenario, increase the cost of capital by three percentage points.
3) You must provide one spreadsheet for each of the three situations—the base case estimate, the best case, and the worst case.
4) What do you recommend? Explain. You may type your recommendation and explanation on the Excel sheet.

Pear Computer’s research and development (R&D) department has developed a proposal for a new generation of tablet-sized computers.
1. Project’s useful life: 4 years.
2. Capital expenditures: $25,000,000.
3. Depreciation: straight-line over 4 years.
4. Sales: 25000 units in year 1, 95,000 in year 2, 70,000 in year 3, 25,000 in year 4. The sales price is expected to remain constant at $580.
5. Cost of goods sold (not counting depreciation): 60% of sales.
6. Selling, general and administrative expenses: $1,500,000 the first year, $1,750,000 the second year, $1,000,000 the third, and $500,000 the 4th.
7. R&D: $1,500,000 spent one year ago.
8. Initial investment in net working capital: $1,250,000. Then it increases by $10,000 for each of three years and finally is fully recovered in the final year.
9. Tax rate: 38%.
10. Cost of Capital: 14%.
MAXIMIZE THE USE OF FORMULAS!