© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
Solutions Manual, Chapter 12 97
Problem 12A-12 (45 minutes)
1. The unit product cost is computed as follows:
Direct materials ………………………………………. $12.00
Direct labor ………………………………………….... 8.00
2. The markup percentage on absorption cost is computed as follows:
(
)
Required ROI Selling and administraive
+
× Investment expenses
Markup percentage =
on absorption cost Unit sales × Unit product cost
3. The selling price is computed as follows:
Unit product cost ………………… $28.00
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
98 Managerial Accounting, 16th Edition
Problem 12A-12 (continued)
4. The absorption net operating income at a price of $38.50 and a
production and sales volume of 19,000 units is computed in two steps:
First, the unit product cost should be recomputed as follows:
Direct materials ………………………………………. $12.00
V
The second step is to compute the net operating income as follows:
Sales (19,000 units × $38.50 per unit)…………. $731,500
Cost of
g
oods sold (19,000 units × $28.26 per
The return on investment (ROI) at a sales volume of 19,000 units is
computed as follows:
ROI = Net operating income ÷ Average operating assets
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
Solutions Manual, Chapter 12 99
Problem 12A-12 (continued)
5a. The new markup percentage is computed as follows:
(
)
Required ROI Selling and administraive
+
× Investment expenses
Markup percentage =
on absorption cost Unit sales × Unit product cost
5b. The new selling price is computed as follows:
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
100 Managerial Accounting, 16th Edition
Problem 12A-12 (continued)
6a and 6b.
The optimal selling price ($34.77) and optimal profit ($124,345) are shown
below:
6c. The controller’s recommendation does not take into account the
customers’ sensitivity to changes in price. When the customers’ latitude
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
Solutions Manual, Chapter 12 101
Problem 12A-13 (30 minutes)
1. The reference value is the price of a full-page ad in Trophy Whitetails
2. The differentiation value offered by a full-page ad in Midwest Whitetails
magazine is computed as follows:
Midwest
Whitetails
Trophy
Whitetails
Number of readers (a) ……………………………… 130,000 200,000
Percent of readers who buy products (b) ………. .007 .005
Number of readers who buy products (a) × (b) 910 1,000
3. The economic value to the customer (EVC) is computed as follows:
EVC = Reference value + Differentiation value
4. The range of possible prices is as follows: