121
124) The management of Landstrom Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company’s accounting
department has supplied the following estimates for the new product:
Per Unit
Per Year
Direct materials
$
28
Direct labor
$
12
Variable manufacturing overhead
$
9
Fixed annual manufacturing overhead
$
132,000
Variable selling and administrative expenses
$
4
Fixed annual selling and administrative expenses
$
30,000
–
Management plans to produce and sell 6,000 units of the new product annually. The new product
would require an investment of $1,036,200 and has a required return on investment of 10%.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing approach.
125) Bohmker Corporation is introducing a new product whose direct materials cost is $25 per
unit, direct labor cost is $13 per unit, variable manufacturing overhead is $9 per unit, and
variable selling and administrative expense is $4 per unit. The annual fixed manufacturing
overhead associated with the product is $18,000 and its annual fixed selling and administrative
expense is $9,000. Management plans to produce and sell 1,000 units of the new product
annually. The new product would require an investment of $110,500 and has a required return on
investment of 10%. Management would like to set the selling price on a new product using the
absorption costing approach to cost-plus pricing.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing approach.
125
126) Powel Corporation manufactures numerous products, one of which is called Gamma54. The
company has provided the following data about this product:
Unit sales
180,000
Selling price per unit
$16.00
Variable cost per unit
$10.00
Traceable fixed expense
$950,000
Required:
a. What net operating income is the company earning now on its sales of Gamma54?
b. Management is considering increasing the price of Gamma54 by 10%, from $16.00 to $17.60.
The company’s marketing managers estimate that this price hike would decrease unit sales by
15%, from 180,000 units to 153,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Gamma54 earn at a price of $17.60 if this sales
forecast is correct?
c. Assuming that the total traceable fixed expense does not change, if Powel increases the price
of Gamma54 to $17.60, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $16.00? (Round your answer to the nearest
one-tenth of a percent.)
127
127) Buzby Corporation manufactures numerous products, one of which is called Epsilon39. The
company has provided the following data about this product:
Unit sales (a)
60,000
Selling price per unit
$
43.00
Variable cost per unit
25.00
Contribution margin per unit (b)
$
18.00
Total contribution margin (a) x (b)
$
1,080,000
Traceable fixed expense
950,000
Net operating income
$
130,000
–
Required:
a. Management is considering decreasing the price of Epsilon39 by 5%, from $43.00 to $40.85.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 10%, from 60,000 units to 66,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Epsilon39 earn at a price of $40.85 if this sales
forecast is correct?
b. Assuming that the total traceable fixed expense does not change, how many units of Epsilon39
would Buzby need to sell at a price of $40.85 to earn the same net operating income that it
currently earns at a price of $43.00? (Round your answer up to the nearest whole number.)
129
128) Saulsberry Corporation manufactures numerous products, one of which is called Beta70.
The company has provided the following data about this product:
Unit sales
90,000
Selling price per unit
$60.00
Variable cost per unit
$36.00
Traceable fixed expense
$2,030,000
Required:
a. What net operating income is the company earning now on its sales of Beta70?
b. Management is considering increasing the price of Beta70 by 10%, from $60.00 to $66.00.
The company’s marketing managers estimate that this price hike would decrease unit sales by
15%, from 90,000 units to 76,500 units. Assuming that the total traceable fixed expense does not
change, what net operating income will Beta70 earn at a price of $66.00 if this sales forecast is
correct?
c. Assuming that the total traceable fixed expense does not change, how many units of Beta70
would Saulsberry need to sell at a price of $66.00 to earn the same net operating income that it
currently earns at a price of $60.00? (Round your answer up to the nearest whole number.)
131
129) Algood Corporation manufactures numerous products, one of which is called Omicron09.
The company has provided the following data about this product:
Unit sales
100,000
Selling price per unit
$19.00
Variable cost per unit
$14.00
Traceable fixed expense
$430,000
Required:
a. What net operating income is the company earning now on its sales of Omicron09?
b. Management is considering decreasing the price of Omicron09 by 5%, from $19.00 to $18.05.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 15%, from 100,000 units to 115,000 units. Assuming that the total traceable fixed expense
does not change, what net operating income will Omicron09 earn at a price of $18.05 if this sales
forecast is correct?
c. Assuming that the total traceable fixed expense does not change, how many units of
Omicron09 would Algood need to sell at a price of $18.05 to earn the same net operating income
that it currently earns at a price of $19.00? (Round your answer up to the nearest whole number.)
133
130) Maccarone Corporation manufactures numerous products, one of which is called Tau10.
The company has provided the following data about this product:
Unit sales
130,000
Selling price per unit
$36.00
Variable cost per unit
$21.00
Traceable fixed expense
$1,690,000
Required:
a. What net operating income is the company earning now on its sales of Tau10?
b. Management is considering decreasing the price of Tau10 by 5%, from $36.00 to $34.20. The
company’s marketing managers estimate that this price reduction would increase unit sales by
10%, from 130,000 units to 143,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Tau10 earn at a price of $34.20 if this sales forecast
is correct?
c. Assuming that the total traceable fixed expense does not change, if Maccarone decreases the
price of Tau10 to $34.20, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $36.00? (Round your answer to the nearest
one-tenth of a percent.)
135
131) Ohanlon Corporation manufactures numerous products, one of which is called Delta27. The
company has provided the following data about this product:
Unit sales (a)
180,000
Selling price per unit
$
62.00
Variable cost per unit
41.00
Contribution margin per unit (b)
$
21.00
Total contribution margin (a) × (b)
$
3,780,000
Traceable fixed expense
3,360,000
Net operating income
$
420,000
–
Required:
a. Management is considering increasing the price of Delta27 by 5%, from $62.00 to $65.10. The
company’s marketing managers estimate that this price hike would decrease unit sales by 10%,
from 180,000 units to 162,000 units. Assuming that the total traceable fixed expense does not
change, what net operating income will Delta27 earn at a price of $65.10 if this sales forecast is
correct?
b. Assuming that the total traceable fixed expense does not change, if Ohanlon increases the
price of Delta27 to $65.10, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $62.00? (Round your answer to the
nearest one-tenth of a percent.)
132) Yashinski Corporation manufactures numerous products, one of which is called Alpha46.
The company has provided the following data about this product:
Unit sales (a)
110,000
Selling price per unit
$45.00
Variable cost per unit
33.00
Contribution margin per unit (b)
$12.00
Total contribution margin (a) x (b)
$1,320,000
Traceable fixed expense
1,240,000
Net operating income
$80,000
Required:
a. Management is considering increasing the price of Alpha46 by 15%, from $45.00 to $51.75.
The company’s marketing managers estimate that this price hike would decrease unit sales by
25%, from 110,000 units to 82,500 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Alpha46 earn at a price of $51.75 if this sales
forecast is correct?
b. Assuming that the total traceable fixed expense does not change, how many units of Alpha46
would Yashinski need to sell at a price of $51.75 to earn the same net operating income that it
currently earns at a price of $45.00? (Round your answer up to the nearest whole number.)