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
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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
Transcribed Image Text: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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