MANAGERIAL ACCT(LL)+CONNECT+PROCTORIO PL
17th Edition
ISBN: 9781265574826
Author: Garrison
Publisher: MCG
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Chapter IE, Problem 3IE
INTEGRATION EXERCISE 3 Absorption Costing. Variable Costing. Cost-Volume-Profit-Relationships LO5-4, LO5-5, LO5-7, LO6-1, LO6-2
Newton Company manufactures and sells one product The companyassembled the following projections for its first year of operations:
During its first year of operations Newton expects to produce 25,000 units and sell 20,000 units. The budgeted selling price of the company's only product is $66 per unit.
Required(answer each question independently by referring to the original data):
- Assuming that Newton’s projections are accurate, what will be its absorption costing net operating income in its first year of operations?
- Newton is considering investing in a higher quality raw material that will increase its direct materials cost by $1per unit.Itestimates that the higher quality raw material will increase sales by1,000 units. What will be the company’s revised absorption costing net operating income if it invests in the higher quality raw material and continues to produce25,000 units?
- Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What wall be the company’s revised absorption costing net operating income if itraises its price by $1.00 and continues to produce 25,000 units?
- Assuming that Newton’s projections are accurate, what will be its variable costing net operating income in its first year ofoperations?
- Newton is considering investing in a higher quality raw material that will increase its direct materials cost by $1 per unit. It estimates that the higher quality raw material will increase sales by1,000 units. What will be the company’s revised variable costing net operating income if it invests in the higher quality raw material and continues to produce25,000 units?
- Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What will be the company’s revised variable costing net operating income if it raises its price by $1.00 andcontinues to produce 25,000 units? 7. What is Newton's break-even point in unit sales? What is its break-even point in dollar sales?
8. Whatis the company’s projected margin of safety in its first year of operations?
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Absorption Costing Approach to Cost-Plus Pricing; Customer Latitude and Pricing
Messina Company wants to use absorption cost-plus pricing to establish the selling price for a new product. The company plans to invest $650,000 in operating assets that provide the capacity to make 30,000 units. Its required return on investment (ROI) in its operating assets is 20%. Messina’s Accounting Department set a goal of producing and selling 20,000 units during the new product’s first year of availability. It also provided the following cost estimates for the new product:
Required:
1. If the company plans to produce and sell 20,000 units, what is the absorption unit product cost for its new product?
2. At a planned sales volume of 20,000 units, what is the markup percentage on absorption cost for the new product?
3. Using absorption cost-plus pricing and assuming a planned sales volume of 20,000 units, what selling price would the company establish for its new product?
4. Using an absorption…
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Accounting
Vision Limited manufactures a product that has the following costs:
Per unit
Per year
Direct materials
$6.00
Direct labour
5.00
Variable manufacturing overhead
4.00
Fixed manufacturing overhead
$360,000
Variable SG&A expenses
5.00
Fixed SG&A expenses
120,000
The company applies the absorption costing approach to cost-plus pricing. The calculations are based on budgeted production and sales of 30,000 units per year.
The company has spent $600,000 on this product and expects a return on investment of 15%.
Required:
a) Calculate the markup on absorption cost.
b) Compute the target selling price of the product using the absorption costing approach.
Chapter IE Solutions
MANAGERIAL ACCT(LL)+CONNECT+PROCTORIO PL
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