REVEL for Horngren's Cost Accounting: A Managerial Emphasis -- Access Card (16th Edition) (What's New in Accounting)
16th Edition
ISBN: 9780134789705
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 13, Problem 13.29P
Cost-plus, target
Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment.
Expected costs for next year are:
| Variable production costs | $3.00 per case |
| Variable marketing and distribution costs | $2.00 per case |
| Fixed production costs | $400,000 |
| Fixed marketing and distribution costs | $700,000 |
| Other fixed costs | $500,000 |
Sweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital.
- 1. What is the target operating income? Required
- 2. What is the selling price Sweet Tastings needs to charge to earn the target operating income? Calculate the markup percentage on full cost.
- 3. Sweet Tastings is considering increasing its selling price to $13 per case. Assuming production and sales decrease by 10%, calculate Sweet Tastings’ return on investment. Is increasing the selling price a good idea?
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Students have asked these similar questions
Cost-plus, target return on investment pricing. Sweet
Tastings makes candy bars for vending machines and sells them
to vendors in cases of 30 bars. Although Sweet Tastings makes a
variety of candy, the cost differences are insignificant, and the
cases all sell for the same price.
Sweet Tastings has a total capital investment of $10,000,000.
It expects to produce and sell 400,000 cases of candy next year.
Sweet Tastings requires a 12% target return on investment.
Expected costs for next year are:
Variable production costs
Variable marketing and distribution costs
Fixed production costs
Fixed marketing and distribution costs
Other fixed costs
$3.00 per case
$2.00 per case
$400,000
$700,000
$500,000
Sweet Tastings prices the cases of candy at full cost plus markup
to generate profits equal to the target return on capital.
Required:
1.
2.
What is the target operating income?
What is the selling price Sweet Tastings needs to charge
to earn the target operating income? Calculate the markup…
Cost-plus, target return on investment pricing. Sweet Tastings makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet Tastings makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price.
Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment. Expected costs for next year are:
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Chapter 13 Solutions
REVEL for Horngren's Cost Accounting: A Managerial Emphasis -- Access Card (16th Edition) (What's New in Accounting)
Ch. 13 - What are the three major influences on pricing...Ch. 13 - Relevant costs for pricing decisions are full...Ch. 13 - Describe four purposes of cost allocation.Ch. 13 - How is activity-based costing useful for pricing...Ch. 13 - Describe two alternative approaches to long-run...Ch. 13 - What is a target cost per unit?Ch. 13 - Describe value engineering and its role in target...Ch. 13 - Give two examples of a value-added cost and two...Ch. 13 - It is not important for a company to distinguish...Ch. 13 - Prob. 13.10Q
Ch. 13 - Describe three alternative cost-plus pricing...Ch. 13 - Give two examples in which the difference in the...Ch. 13 - What is life-cycle budgeting?Ch. 13 - What are three benefits of using a product...Ch. 13 - Prob. 13.15QCh. 13 - Which of the following statements regarding price...Ch. 13 - Value-added, non-value-added costs. The Magill...Ch. 13 - Target operating income, value-added costs,...Ch. 13 - Target prices, target costs, activity-based...Ch. 13 - Target costs, effect of product-design changes on...Ch. 13 - Target costs, effect of process-design changes on...Ch. 13 - Cost-plus target return on investment pricing....Ch. 13 - Cost-plus, target pricing, working backward....Ch. 13 - Life-cycle budgeting and costing. Arnold...Ch. 13 - Considerations other than cost in pricing...Ch. 13 - Cost-plus, target pricing, working backward. The...Ch. 13 - Value engineering, target pricing, and target...Ch. 13 - Target service costs, value engineering,...Ch. 13 - Cost-plus, target return on investment pricing....Ch. 13 - Cost-plus, time and materials, ethics. C S...Ch. 13 - Cost-plus and market-based pricing. Georgia Temps,...Ch. 13 - Cost-plus and market-based pricing. (CMA, adapted)...Ch. 13 - Life-cycle costing. Maximum Metal Recycling and...Ch. 13 - Airline pricing, considerations other than cost in...Ch. 13 - Prob. 13.35PCh. 13 - Ethics and pricing. Instyle Interior Designs has...Ch. 13 - Value engineering, target pricing, and locked-in...
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