od Creations designs, manufactures, and sells modern wood sculptures. Sally Jense rtist for the company. Jensen has spent much of the past month working on the de n intricate abstract piece. Jim Smoot, product development manager, likes the des vever, he wants to make sure that the sculpture can be priced competitively. Al npa, Wood's cost accountant, presents Smoot with the following cost data for ected production of 75 sculptures: $ 8,000 30,000 37,000 33,000 25,000 15,000 Design cost Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Marketing uired: Smoot thinks that Wood Creations can successfully market each piece for $2,400. company's target operating income is 20% of revenue. a.) Wood Creations has a total capital investment of $240,000. Compute the ta percentage of return on investment. b.) Calculate the markup percentage on full cost based on the current cost data. c.) Calculate the target full cost of producing the 75 sculptures. Does the cost estin
od Creations designs, manufactures, and sells modern wood sculptures. Sally Jense rtist for the company. Jensen has spent much of the past month working on the de n intricate abstract piece. Jim Smoot, product development manager, likes the des vever, he wants to make sure that the sculpture can be priced competitively. Al npa, Wood's cost accountant, presents Smoot with the following cost data for ected production of 75 sculptures: $ 8,000 30,000 37,000 33,000 25,000 15,000 Design cost Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Marketing uired: Smoot thinks that Wood Creations can successfully market each piece for $2,400. company's target operating income is 20% of revenue. a.) Wood Creations has a total capital investment of $240,000. Compute the ta percentage of return on investment. b.) Calculate the markup percentage on full cost based on the current cost data. c.) Calculate the target full cost of producing the 75 sculptures. Does the cost estin
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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answer 2-4
Transcribed Image Text:Wood Creations designs, manufactures, and sells modern wood sculptures. Sally Jensen is
an artist for the company. Jensen has spent much of the past month working on the design
of an intricate abstract piece. Jim Smoot, product development manager, likes the design.
However, he wants to make sure that the sculpture can be priced competitively. Alexis
Nampa, Wood's cost accountant, presents Smoot with the following cost data for the
expected production of 75 sculptures:
$ 8,000
30,000
37,000
33,000
25,000
15,000
Design cost
Direct materials
Direct manufacturing labor
Variable manufacturing overhead
Fixed manufacturing overhead
Marketing
Required:
1. Smoot thinks that Wood Creations can successfully market each piece for $2,400. The
company's target operating income is 20% of revenue.
a.) Wood Creations has a total capital investment of $240,000. Compute the target
percentage of return on investment.
b.) Calculate the markup percentage on full cost based on the current cost data.
c.) Calculate the target full cost of producing the 75 sculptures. Does the cost estimate
Nampa developed meet Wood's requirements? Is value engineering needed?
2. Smoot discovers that Jensen has designed the sculpture using the highest-grade wood
available, rather than the standard grade of wood that Wood Creations normally uses.
Replacing the grade of wood will lower the cost of direct materials by 50%. However,
the redesign will require an additional $1,100 of design cost, and the sculptures will be
sold for $2,300 each. Will this design change allow the sculpture to meet its target
return on investment in la above? Is the cost of wood a locked-in cost?
3. Jensen insists that the higher-grade wood is a necessity in terms of the sculpture's
design. She believes that spending an additional $4,000 on better marketing will allow
Wood Creations to sell each sculpture for $2,500. If this is the case, will the company's
target return on investment be achieved without any value engineering?
4. What do you recommend Wood Creations do? Explain briefly.
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