Units produced and sold Investment Markup percentage on full cost Rate of return on investment Variable cost per unit 3,000 $3,000,000 10% 15% $600 1. What was KidsPlay's operating income in 2016? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost to achieve the selling price? What are the total fixed costs? 2. KidsPlay is considering increasing the annual spending on advertising by $200,000. The managers believe that the investment will translate into a 10% increase in unit sales. Should the company make the investment? Show your calculations. 3. Refer back to the original data. In 2017, KidsPlay believes that it will be able to sell only 2,700 units at the price calculated in requirement 1. Management has identified $185,000 in fixed cost that can be eliminated. If KidsPlay wants to maintain a 10% markup on full cost, what is the target variable cost per unit? Required

Units produced and sold Investment Markup percentage on full cost Rate of return on investment Variable cost per unit 3,000 $3,000,000 10% 15% $600 1. What was KidsPlay's operating income in 2016? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost to achieve the selling price? What are the total fixed costs? 2. KidsPlay is considering increasing the annual spending on advertising by $200,000. The managers believe that the investment will translate into a 10% increase in unit sales. Should the company make the investment? Show your calculations. 3. Refer back to the original data. In 2017, KidsPlay believes that it will be able to sell only 2,700 units at the price calculated in requirement 1. Management has identified $185,000 in fixed cost that can be eliminated. If KidsPlay wants to maintain a 10% markup on full cost, what is the target variable cost per unit? 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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Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

Question

Cost-plus, target pricing, working backward. KidsPlay, Inc., manufactures and sells table sets. In 2016, it reported the following:

Units produced and sold
Investment
Markup percentage on full cost
Rate of return on investment
Variable cost per unit
3,000
$3,000,000
10%
15%
$600
1. What was KidsPlay's operating income in 2016? What was the full cost per unit? What was the selling
price? What was the percentage markup on variable cost to achieve the selling price? What are the
total fixed costs?
2. KidsPlay is considering increasing the annual spending on advertising by $200,000. The managers
believe that the investment will translate into a 10% increase in unit sales. Should the company make
the investment? Show your calculations.
3. Refer back to the original data. In 2017, KidsPlay believes that it will be able to sell only 2,700 units at
the price calculated in requirement 1. Management has identified $185,000 in fixed cost that can be
eliminated. If KidsPlay wants to maintain a 10% markup on full cost, what is the target variable cost
per unit?
Required

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