A company is planning a new product. Market research information suggests that the product should sell 10,000 units at RM21.00/unit. The company seeks to make a mark-up of 40% product cost. It is estimated that the lifetime costs of the product will be as follows: 1 Design and development costs RM50,000 2 Manufacturing costs RM10/unit 3 End of life costs RM20,000 The company estimates that if it were to spend an additional RM15,000 on design, manufacturing costs/ unit could be reduced. Required: (a) What is the target cost of the product? (b) What is the original lifecycle cost per unit and is the product worth making on that basis? (c) If the additional amount were spent on design, what is the maximum manufacturing cost per unit that could be tolerated if the company is to earn its required mark-up?

A company is planning a new product. Market research information suggests that the product should sell 10,000 units at RM21.00/unit. The company seeks to make a mark-up of 40% product cost. It is estimated that the lifetime costs of the product will be as follows: 1 Design and development costs RM50,000 2 Manufacturing costs RM10/unit 3 End of life costs RM20,000 The company estimates that if it were to spend an additional RM15,000 on design, manufacturing costs/ unit could be reduced. Required: (a) What is the target cost of the product? (b) What is the original lifecycle cost per unit and is the product worth making on that basis? (c) If the additional amount were spent on design, what is the maximum manufacturing cost per unit that could be tolerated if the company is to earn its required mark-up?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 10EB: Keleher Industries manufactures pet doors and sells them directly to the consumer via their web...

See similar textbooks

Similar questions

Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of 22 each in the coming year. Total variable costs equal 1,086,800. Total fixed costs equal 8,000,000. (Round all ratios to four significant digits, and round all dollar amounts to the nearest dollar.) Required: 1. What is the contribution margin per unit? What is the contribution margin ratio? 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 245,000. 4. What if the average price per unit increased to 23.50? Recalculate: a. Contribution margin per unit b. Contribution margin ratio (rounded to four decimal places) c. Sales revenue needed to break even d. Sales revenue needed to achieve a target profit of 245,000
A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per year for reworking products. What is a good estimate of non-value-added costs? a. 126,000 b. 70,000 c. 56,000 d. 130,000
Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.
Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
A company is planning a new product. Market research information suggests that the product should sell 20,000 units at $35.00/unit. The company seeks to make a margin of 20% on sales. It is estimated that the lifetime costs of the product will be as follows: a. Research and development costs $60,000 b. Manufacturing costs $25/unit c. Decommissioning Costs $40,000 What is the Target Cost per unit? What is the original lifecycle cost per unit?
A company is planning a new product. Market research information suggests that the new product will sell 10,000 total units at a price of $21.00 per unit. The company estimates the lifetime costs of the product as follows: Estimated costs Design and development costs: $50,000 Manufacturing costs: End-of-life costs: $10.00 per unit $20,000 The company estimates that if it were to spend an additional $15,000 on design, then manufacturing costs could be reduced. a) What is the target cost of the product if the company seeks a markup of 40% of product Round answer to two decimal places. $ Given the target cost, would you expect the company to launch the product? Yes ✰ b) What is the maximum allowable product manufacturing cost per unit if the company seeks a markup of 40% of the original life-cycle cost? Round answer to two decimal places. $ Using the total life-cycle cost to determine target product cost, would you expect the company to launch the product? No c) Assume the additional…
A company is planning a new product. Market research information suggests that the new product will sell 10,000 total units at a price of $21.00 per unit. The company estimates the lifetime costs of the product as follows: Estimated costs Design and development costs: $50,000 Manufacturing costs: End-of-life costs: $10.00 per unit $20,000 The company estimates that if it were to spend an additional $15,000 on design, then manufacturing costs could be reduced. a) What is the target cost of the product if the company seeks a markup of 40% of product Round answer to two decimal places. $ 15 Given the target cost, would you expect the company to launch the product? Yes + b) What is the maximum allowable product manufacturing cost per unit if the company seeks a markup of 40% of the original life-cycle cost? Round answer to two decimal places. $ 8 Using the total life-cycle cost to determine target product cost, would you expect the company to launch the product? No ✰ c) Assume the…
Nivea Company is planning to introduce a new product. Market research information suggests that the product should sell 1000 units at OMR 225 per unit. The company seeks to make a mark- up of 45% product cost. It is estimated that the lifetime costs of the product will be as follows: 1. Design and development costs OMR 22000 2. Manufacturing costs OMR 150 per unit 3. End of life costs OMR 3000 By analyzing the life cycle cost of the product, do you recommend the company to produce the new product?
Golden Corporation contemplates to market a new product. Estimated fixed costs is P1,000,000. The variable costs ratio is 60%. if the product is to be sold at P25 per unit, how many units should the company sell to earn a net income of P200,000?
ABC Company manufactures the product XE-17. The product is sold at a unit price of $70.Variable expenses are $13.50 per unit and fixed expenses are $220,000 per year.Required :a. What should be the product’s CM ratio? b. Calculate the BEP is sales dollars and in units for ABC Company. c. The manager of ABC company estimates that in the coming year, the company’s sales willincrease by $80,000 (from the current sales). How much should the net profit / loss increase/decrease if the fixed costs remain constant? d. The manager of ABC company predicts that by spending an additional $80,000 per year onadvertising and using higher quality raw material (which will in turn increase the raw materialcost per unit by $3), and increasing selling price per unit by 2% (to compensate for theincreased costs), unit sales will increase by two- thirds of the current sales units. Should thecompany go with the manager’s proposed plan? Explain your answer. (Assume that in thecurrent year, the company sold…