Insert Page Layout Formulas Data Home A Variable manufacturing costs per unit: Direct materials 22 2 Direct manufacturing labor Manufacturing overhead 5 Fixed manufacturing overhead 30 3 12 $650,000 1. Assume that Market.com uses absorption costing and uses budgeted units produced as the denomina- tor for calculating its fixed manufacturing overhead rate. Selling price is set at 140% of manufacturing cost. Compute Market.com's selling price. 2. Market.com enters the market with the selling price computed previously. However, despite growth in the overall market, sales are not as robust as the company had expected, and a competitor has priced its product at $102.00. Mr. Samuel Buttons, the company's president, insists that the competitor must be pricing its product at a loss and that the competitor will be unable to sustain that. In response, Market. com makes no price adjustments but budgets production and sales for 2018 at 43,800 tablets. Variable and fixed costs are not expected to change. Compute Market.com's new selling price. Comment on how Market.com's choice of budgeted production affected its selling price and competitive position. 3. Recompute the selling price using practical capacity as the denominator level of activity. How would this choice have affected Market.com's position in the marketplace? Generally, how would this choice affect the production-volume variance? Required

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Downward demand spiral. Market.com is about to enter the highly competitive personal electronics market with a new type of tablet. In anticipation of future growth, the company has leased a large manufacturing facility and has purchased several expensive pieces of equipment. In 2017, the company’s first year, Market.com budgets for production and sales of 50,000 units, compared with its practical capacity of 78,000. The company’s cost data are as follows:

Insert
Page Layout
Formulas
Data
Home
A
Variable manufacturing costs per unit:
Direct materials
22
2
Direct manufacturing labor
Manufacturing overhead
5 Fixed manufacturing overhead
30
3
12
$650,000
1. Assume that Market.com uses absorption costing and uses budgeted units produced as the denomina-
tor for calculating its fixed manufacturing overhead rate. Selling price is set at 140% of manufacturing
cost. Compute Market.com's selling price.
2. Market.com enters the market with the selling price computed previously. However, despite growth in
the overall market, sales are not as robust as the company had expected, and a competitor has priced
its product at $102.00. Mr. Samuel Buttons, the company's president, insists that the competitor must be
pricing its product at a loss and that the competitor will be unable to sustain that. In response, Market.
com makes no price adjustments but budgets production and sales for 2018 at 43,800 tablets. Variable
and fixed costs are not expected to change. Compute Market.com's new selling price. Comment on
how Market.com's choice of budgeted production affected its selling price and competitive position.
3. Recompute the selling price using practical capacity as the denominator level of activity. How would
this choice have affected Market.com's position in the marketplace? Generally, how would this choice
affect the production-volume variance?
Required

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