Chapter 22 Checkpeint Name Part A Stone Company is considering introducing a new
ID: 2406110 • Letter: C
Question
Chapter 22 Checkpeint Name Part A Stone Company is considering introducing a new line of pagers, targeting the preteen population. Stone believes that if the pagers can be priced competitively at $45, approximately 300,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,000,000 will be required. Stone requires a minimum rate of return of 16% on all investments. Compute the target unit cost per unit of the pager. Part B Jocy's Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,000 sessions. The company has invested $2,000,000 in the studio and expects a return on investment (ROI) of 16.5% Budgeted costs for the coming year as followK Per Session Total S60 $400 S50 Direet materials Direct labor Variable overhead Fixed overhead Variable selling and administrative Fixed selling and administrative S40 800,000 Required: (a) Detrmine the total cost per session (b) Determine the desired ROl per session. (c) Calculate the mark-up percentage on the total cost per session. (d) Caleulate the target price per session. Part C Silver Spoon Service repairs commercial food preparation equipment The following budgeted cost data is available for 2016 Material Charges Charges Time Technicians wages and benefits Parts manager's salary and benefits Office manager's salary and benefits Other overhead Total budgeted costs $500,000 $72,000 112,000 18,000 48,000 35,000 $660,000 S225,000 Silver Sppon has budgeted for 10,000 hours of technician time during the coming year. It desires a $54 profit margin per hour of labor and a 40% profit margin on parts. Silver Spoon estimates the total invoice cost of parts and materials in 2016 will be $500,000 Required: 1. Compute the rate charged per hour of labor 2. Compate the material loading charge 3. Silver Spoon has received a request from Lime Corporation for an estimate to repair a commercial fryer. The company estimates that it would take 20 hours of labor and parts costing $8,000. Compute the total estimated price for the repair job.Explanation / Answer
Solution:Part A: Computation of Target Unit Cost per unit of the Pager
Let the Target unit cost of the pager= x
Selling price per unit of pager= $ 45
Number of units sold=3,00,000 units
Therefore total sales=( $ 45*3,00,000 units)=$ 135,00,000
Investment Required =$ 40,00,000
Required rate of return= 16 %( Investments)= 0.16( $ 40,00,000)=$ 6,40,000
Therefore Sales-Desired Return= Full Target Cost
Full Target Cost=$ 135,00,000-$ 6,40,000=$ 128,60,000
Therefore Target unit cost( x)= Full Target Cost/Number of units
= $ 128,60,000/3,00,000 units= $ 42.87 /unit of pager.
Solution Part B:
Working Note1: Calculation of Total Cost per session
Direct Materials($ 60* 1000 sessions)---------------------------------$ 60,000
Direct Labour( $ 400* 1000 sessions)--------------------------------$4,00,000
Variable Overhead($50* 1000 sessions)------------------------$ 50,000
Total Variable Cost--------------------------------------------------------$ 5,10,000
Add: Fixed Overhesds----------------------------------------------------$ 8,50,000
Total Production Cost---------------------------------------------------$ 13,60,000
Add:Variable Selling and Administration($ 40*1000 sessions)---$40,000
Add: Fixed Selling and Administration---------------------------------$8,00,000
ThereforeTOTAL COST--------------------------------------------------$ 22,00,000
Total Cost per session= $22,00,000/1000sessions= $ 2,200 per session
Working Note 2: Desired ROI per session
Investment Required= $ 20,00,000 , Expected Return= 16.5 %
Therefore Total Return=$ 3,30,000
Therefore Desired Return per session=$3,30,000/1000 sessions
= $ 330 per session
Working Note3: Mark up Percentage on the Total Cost
=($ 330/$2,200)* 100=15 %
Working Note 4: Target Price per session
Target Price= Full Cost+ Desired Rate of Return=$ 2,200 +$ 330
=$ 2530
Solution: Part C:
Working Note1: Rate charged per hour of Labour
Total Technician wages= $ 5,00,000
Budgeted hours of technician time=10,000 hours
Therefore Cost per hour of labour= $ 5,00,000/10,000 hours=$ 50 per hour
Margin Required per hour of labour--------------------------------=$ 54per hour
Therefore Rate charged per hour of labour=($ 50+$54)-------=$ 104 per hour
Working Note 2: Material Loading Charge
Total Invoice Cost of Parts and Materials= $ 5,00,000
Invoice cost of Parts= Cost of parts+ Margin on cost of parts=$ 72,000+0.4(72,000)
=$ 72,000 + $ 28,800= $ 100,800
Therefore Material Loading Charge= $ 5,00,000-$ 100,800=$ 3,99,200
Working Note 3: Estimated Price for Repair Job
Parts( Cost+Margin=$ 8000+ $ 3,200) =$ 11,200
Labour ( 20 hours*$ 104/hour)=$ 2,080
Therefore Estimated Price for Repair Job=$ 13,280
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