The Fastener Company manufactures office equipment for retail stores. Carol Wats
ID: 2481404 • Letter: T
Question
The Fastener Company manufactures office equipment for retail stores. Carol Watson, the vice president of marketing, has proposed that Fastener introduce two new products: an electric stapler and an electric pencil sharpener. Watson has requested that the Profit Planning Department develop preliminary selling prices for the two new products for her review.
Profit PLanning has followed the company's standard policy for developing potential selling prices. It has used all data available for each product. The data accumulated by Profit Planning are as follows:
Fastener plans to use an average of $1,200,000 in assets to support operations in the current year. The condensed budgeted income statement that follows reflects the planned return on assets of 20% ($240,000/$1,200,000) for the entire company for all products.
Fastener Company
Budgeted Income statement For the Year Ended May 31
( in thousands)
4. Discuss the additional steps Carol Watson is likely to take in setting an actual selling price for each of the two products after she receives their potential selling prices ( as calculated in requirement 1.) (CMA adapted)
Electric Stapler Electric Pencil Sharpener Estimated annual demand in units 16,000 12,000 Estimated unit manufacturing costs $14 $15 Estimated unit selling and administrative expenses $3 N/A Assets employed in manufacturing $160,000 N/AExplanation / Answer
The Key of setting up pricing price to compute the separate cost of Electric Stapler & Electric Pencil Sharpener through activity based costing or any other reliable method as per company cost system.Relevant cost is vital to decide cost and consequently pricing of a product.
Fastener plans to use an average of $1,200,000 in assets to support operations in the current year but it's required to calculate how many assets electric stapler uses and how much electric pencil sharpeners use.Accordingly cost will be calculated and price.
One another important thing to set up the price to check competitor prices n marker it should not be significantly higher if don't have any superior brand value or unique features.
Formula would be ,
Variable Cost
+Seprate fixed cost
+Allocated fixed cost
+% Margin
=Sales price
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