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Concept Introduction:
Target Pricing: In Target pricing the pricing of services/product is fixed first. The pricing is fixed on the basis of
Cost Plus Pricing: In Cost Plus Pricing , the Pricing is decided on the basis of Cost based method. In this first of all variable and fixed cost is added to get total cost . In total Cost the desired profit margin is added to get the pricing of a product.
Requirement1
1. Approach to Pricing Rouse Builders should emphasize.
Requirement 2
1. Whether Rouse Builder able to achieve target profit
Requirement 3
1. The New Cost Plus Price per Home
2. Should Company able to differentiate its product
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Chapter 25 Solutions
ACCOUNTING PRINCIPLES 222 5/16 >C<
- Aero Dynamics manufactures airplane parts and engines for a variety of military and civilian aircraft. The company is the sole provider of rocket engines for the U.S. military. The price is set at full cost plus a 5% markup. Aero Dynamics's current cost system is a direct labor hour-based overhead allocation system. Recently, the company conducted a pilot study on the feasibility of using an activity-based costing system. The study shows that the new ABC system, while more accurate and timely, will result in the assignment of lower costs to the rocket engines and higher costs to the company's other products. Apparently, the current direct labor-based costing system overcosts the rocket engines and undercosts the other products. On hearing of this, top management has decided to scrap the plans to adopt the ABC system because its rocket engine business with the military is significant and the reduced cost would lower the price and, thus, the profit for this part of Aero Dynamics's…arrow_forwardWhat is the firm's degree of leverage?arrow_forwardHello tutor solve this question accountingarrow_forward
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