Linwood Company recently began production of a new navigation device, which required a capital investment of $660,000. Linwood is currently considering establishing a selling price for this new device that will ensure a 25% return on the capital investment. The engineering and the sales department compiled the following estimates for producing and selling 77,000 devices: Per Unit Total (77,000 units) Direct Materials $12 Direct Labor $26 Variable Manufacturing Overhead $14 Selling and Administrative Expenses $17 Fixed Manufacturing Overhead $223,000 General and Administrative Expenses $73,000 Required: Do not enter dollar signs or commas in the input boxes. Round all answers to 2 decimal places. a) Using the cost plus pricing method, calculate the markup percentage. Full Cost: $Answer Markup Percentage: Answer % b) The company has a cost plus pricing policy that uses the absorption (full) cost as the cost base and the markup percentage calculated in part a). How much would the company charge for its new navigation device? Selling Price: Answer% c) Based on a recent consumer report, the company predicts that its device cannot be priced higher than $63. At this particular price, the company believes it can sell 85,000 units and assumes the fixed costs will remain the same. Using the target costing method, calculate the total target cost and the total manufacturing cost based on 85,000 units. Total Target Cost: $Answer Total Manufacturing Cost: $Answer

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

Linwood Company recently began production of a new navigation device, which required a capital investment of $660,000. Linwood is currently considering establishing a selling price for this new device that will ensure a 25% return on the capital investment. The engineering and the sales department compiled the following estimates for producing and selling 77,000 devices:

	Per Unit	Total (77,000 units)
Direct Materials	$12
Direct Labor	$26
Variable Manufacturing Overhead	$14
Selling and Administrative Expenses	$17
Fixed Manufacturing Overhead		$223,000
General and Administrative Expenses		$73,000

Required:

Do not enter dollar signs or commas in the input boxes.
Round all answers to 2 decimal places.

a) Using the cost plus pricing method, calculate the markup percentage.

Full Cost: $Answer

Markup Percentage: Answer %

b) The company has a cost plus pricing policy that uses the absorption (full) cost as the cost base and the markup percentage calculated in part a). How much would the company charge for its new navigation device?

Selling Price: Answer%

c) Based on a recent consumer report, the company predicts that its device cannot be priced higher than $63. At this particular price, the company believes it can sell 85,000 units and assumes the fixed costs will remain the same. Using the target costing method, calculate the total target cost and the total manufacturing cost based on 85,000 units.

Total Target Cost: $Answer

Total Manufacturing Cost: $Answer

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