Downward demand spiral. Market.com is about to enter the highly competitive personal electronics market with a new type of tablet. In anticipation of future growth, the company has leased a large manufacturing facility and has purchased several expensive pieces of equipment. In 2017, the company’s first year Market.com budgets for production and sales of 50,000 units, compared with its practical capacity of 78,000. The company’s cost data are as follows: 1. Assume that Market.com uses absorption costing and uses budgeted units produced as the denominator for calculating its fixed manufacturing overhead rate. Selling price is set at 140% of manufacturing cost . Compute Market.com’s selling price. Required 2. Market.com enters the market with the selling price computed previously. However, despite growth in the overall market, sales are not as robust as the company had expected, and a competitor has priced its product at $102.00. Mr. Samuel Buttons, the company’s president, insists that the competitor must be pricing its product at a loss and that the competitor will be unable to sustain that. In response, Market.com makes no price adjustments but budgets production and sales for 2018 at 43,800 tablets. Variable and fixed costs are not expected to change. Compute Market.com ’s new selling price. Comment on how Market.com ’s choice of budgeted production affected its selling price and competitive position. 3. Recompute the selling price using practical capacity as the denominator level of activity. How would this choice have affected Market.com ’s position in the marketplace? Generally, how would this choice affect the production-volume variance?

Megaphone Corporation produces a molded plastic casing, M&M101, for many cell phones currently on the market. Summary data from its 2017 income statement are as follows:Revenues $5,000,000 Variable costs 3,250,000 Fixed costs 1,890,000 Operating income $ (140,000) Joshua Kirby, Megaphone’s president, is very concerned about Megaphone Corporation’s poor profitability. He asks Leroy Gibbs, production manager, and Tony DiNunzo, controller, to see if there are ways to reduce costs. After 2 weeks, Leroy returns with a proposal to reduce variable costs to 55% of revenues by reducing the costs Megaphone currently incurs for safe disposal of wasted plastic. Tony is concerned that this would expose the company to potential environmental liabilities. He tells Leroy, “We would need to estimate some of these potential environmental costs and include them in…

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ABC has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sale of new product YEAR EXPECTED VOLUME EXPECTED PRICE PER UNIT 1 48,000 19 2 48,000 20 3 90,000 16 4 40,000 12 The firm wants a net minimum of 3.5 profit per unit over the product life. Fixed average expenses related to the new product is expected to be 50,000 annually. Calculate the target cost per unit.

An industry is going to launch a new product in the market in the year 2018. The data pertaining to the costs and the estimated sales is provided as follows 1. Fixed cost for the year 2018-2019 is 20000$. 2. The variable cost per unit is 12$. 3. The estimated sales are 800000$. 4. If each unit is sold at 30$. Find out 1. Break-even point. 2. The profit at a turn-over of 25000 units. 3. Margin of safety in terms of units and sales. 4. If a profit target is 1200000$, compute the turn over required. 5. Also construct the break-even chart and show the details on it.

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Darius Manufacturing Company manufactures and bels parts for various musical gadgets. The business earned Operating Income of $420,000 in 2018, when selling price per unit was $200 and the president of Darius is under pressure to increase operating income in 2019 and is therefore considering the implementation of strategies geared at increasing revenues. Data for variable cost per unit and total fixed costs were as follows: Direct Material Direct Labour Variable Manufacturing Overhead $10 Fixed Manufacturing Overhead Fixed Selling Costs Variable expenses per unit: $20 $50 Fixed expenses: $125,000 $75,000 Fixed Administrative Costs $100,000 You have just begun your internship at the company. The financial controller, Dave Miler, has indicated that the business is considering paying a commission to its sales team as part of the sales expansion effort, which should result in an increase in sales revenue. The head of the marketing department has indicated that the effort of the sales team…

Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:

Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?

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After conducting a market research study, Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $270. The annual target sales volume for interior doors is 29,000. Magnificent has target operating income of 40% of sales. What are target sales revenues? A. $4,698,000 B. $3,132,000 C. $10,962,000 D. $7,830,000

Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web site construction is estimated to be $171,000. Variable processing costs are estimated to be $8 per book. The publisher plans to sell single-user access to the book for $41. Through a series of web-based experiments, Eastman has created a predictive model that estimates demand as a function of price. The predictive model is demand = 4,000 − 6p, where p is the price of the e-book. (a) Construct an appropriate spreadsheet model for calculating the profit/loss at a given single-user access price taking into account the above demand function. What is the profit estimated

A Swiss Interior Company produces and sells lamps that are sold usually all year round. The company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, the business earned Operating Income of $600,000 in 2020. The following cost data has been prepared for the year ended December 31, 2020. 1. The Swiss Interior Company's management team is concerned about the selling expenses associated with the product and wants to reduce the variable selling expense per unit by 30%, which will see a simultaneous reduction in the total fixed selling expenses by $30,000. If they are able to accomplish this feat, it is expected that sales volume for the year will fall by 162⁄3% below normal capacity. What must the new selling price per unit be if the company wishes to meet the shareholders’ profit objective for 2021? How will these changes impact the percentage margin of safety? 2. What are the advantages and disadvantages of the scattergram method as compared…

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