Macquarium Inc. provides computer-related services to its dients. Its two primary services are Web page design (WPD) and Internet consulting services (ICS). Assume that Macquarium's management expects to earn a 35% annual return on the assets invested. Macquarium has invested $5.4 million since its opening. The annual costs for the coming year are expected to be as follows: Variable Costs Fixed Costs Consulting support Sales and administration $225,000 $1,575,000 135,000 765,000 The two services expend about equal costs per hour, and the predicted hours for the coming year are 15,000 for WPD and 25,000 for ICS. Required a. If markup is based on variable costs, how much revenue must each service generate to provide the profit expected by corporate headquarters? What is the anticipated revenue per hour for each service? Hint: Start by determining the markup rate. WPD $ Total Revenue Reveue per Hour ICS S b. If the markup is based on total costs, how much revenue must each service generate to provide the expected profit? WPD Revenue: $0 ICS Revenue: $ 0 c. What is total revenue for part (a) and total revenue for part (b)? Total revenue for (a): $ 0 Total revenue for (b): $0 d. Label each of the following as an advantage or disadvantage of using a cost-based pricing model. 1. Relatively easy and convenient 2. Based on cost data which may be erroneous 3. Used for new products where there is not markeplace data 4. Does not take into account product market demand
Macquarium Inc. provides computer-related services to its dients. Its two primary services are Web page design (WPD) and Internet consulting services (ICS). Assume that Macquarium's management expects to earn a 35% annual return on the assets invested. Macquarium has invested $5.4 million since its opening. The annual costs for the coming year are expected to be as follows: Variable Costs Fixed Costs Consulting support Sales and administration $225,000 $1,575,000 135,000 765,000 The two services expend about equal costs per hour, and the predicted hours for the coming year are 15,000 for WPD and 25,000 for ICS. Required a. If markup is based on variable costs, how much revenue must each service generate to provide the profit expected by corporate headquarters? What is the anticipated revenue per hour for each service? Hint: Start by determining the markup rate. WPD $ Total Revenue Reveue per Hour ICS S b. If the markup is based on total costs, how much revenue must each service generate to provide the expected profit? WPD Revenue: $0 ICS Revenue: $ 0 c. What is total revenue for part (a) and total revenue for part (b)? Total revenue for (a): $ 0 Total revenue for (b): $0 d. Label each of the following as an advantage or disadvantage of using a cost-based pricing model. 1. Relatively easy and convenient 2. Based on cost data which may be erroneous 3. Used for new products where there is not markeplace data 4. Does not take into account product market demand
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Macquarium Inc. provides computer-related services to its dients. Its two primary services are Web page design (WPD) and Internet consulting services (ICS).
Assume that Macquarium's management expects to earn a 35% annual return on the assets invested. Macquarium has invested $5.4 million since its opening.
The annual costs for the coming year are expected to be as follows:
Variable Costs Fixed Costs
Consulting support
Sales and administration
$225,000 $1,575,000
135,000
765,000
The two services expend about equal costs per hour, and the predicted hours for the coming year are 15,000 for WPD and 25,000 for ICS.
Required
a. If markup is based on variable costs, how much revenue must each service generate to provide the profit expected by corporate headquarters? What is the
anticipated revenue per hour for each service?
Hint: Start by determining the markup rate.
WPD $
Total Revenue Reveue per Hour
ICS S
b. If the markup is based on total costs, how much revenue must each service generate to provide the expected profit?
WPD Revenue: $0
ICS Revenue: $ 0
c. What is total revenue for part (a) and total revenue for part (b)?
Total revenue for (a): $ 0
Total revenue for (b): $0
d. Label each of the following as an advantage or disadvantage of using a cost-based pricing model.
1. Relatively easy and convenient
2. Based on cost data which may be erroneous
3. Used for new products where there is not markeplace data
4. Does not take into account product market demand
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