Cost-plus, target pricing, working backward. The new CEO of Rusty Manufacturing has asked for a variety of information about the operations of the firm from last year. The CEO is given the following information, but with some data missing:Find (a) total sales revenue, (b) selling price, (c) rate of return on investment, and (d) markup percentage on full cost for this product.The new CEO has a plan to reduce fixed costs by $225,000 and variable costs by $0.30 per unit while continuing to produce and sell 500,000 units. Using the same markup percentage as in requirement 1, calculate the new selling price.Assume the CEO institutes the changes in requirement 2 including the new selling price. However, the reduction in variable cost has resulted in lower product quality resulting in 5% fewer units being sold compared with before the change. Calculate operating income (loss).What concerns, if any, other than the quality problem described in requirement 3, do you see in implementing the CEO’s plan? Explain briefly. Total sales revenueNumber of units produced and soldSelling price500,000 units$180,000Operating income$2,250,000Total investment in assets$4.00Variable cost per unitFixed costs for the year$2,500,000

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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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Cost-plus, target pricing, working backward. The new CEO of Rusty Manufacturing has asked for a variety of information about the operations of the firm from last year. The CEO is given the following information, but with some data missing:

Find (a) total sales revenue, (b) selling price, (c) rate of return on investment, and (d) markup percentage on full cost for this product.
The new CEO has a plan to reduce fixed costs by $225,000 and variable costs by $0.30 per unit while continuing to produce and sell 500,000 units. Using the same markup percentage as in requirement 1, calculate the new selling price.
Assume the CEO institutes the changes in requirement 2 including the new selling price. However, the reduction in variable cost has resulted in lower product quality resulting in 5% fewer units being sold compared with before the change. Calculate operating income (loss).
What concerns, if any, other than the quality problem described in requirement 3, do you see in implementing the CEO’s plan? Explain briefly.

Total sales revenue
Number of units produced and sold
Selling price
500,000 units
$180,000
Operating income
$2,250,000
Total investment in assets
$4.00
Variable cost per unit
Fixed costs for the year
$2,500,000

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