Anderson Windows Inc. is in the process of setting a target price on its newly d
ID: 2475029 • Letter: A
Question
Anderson Windows Inc. is in the process of setting a target price on its newly designed tinted window. Cost data relating to the window at a budgeted volume of 3,500 units are as follows. Per Unit Total Direct materials $ 100 Direct labor $ 65 Variable manufacturing overhead $ 15 Fixed manufacturing overhead $ 87,500 Variable selling and administrative expenses $ 10 Fixed selling and administrative expenses $ 80,500 Anderson Windows uses cost-plus pricing methods that are designed to provide the company with a 20% ROI on its tinted window line. A total of $1,000,000 in assets is committed to production of the new tinted window. Collapse question part (a) Compute the markup percentage under absorption-cost pricing that will allow Anderson Windows to realize its desired ROI. (Round answer to 2 decimal places, e.g. 10.50.)
Markup Percentage %
Expand question part (b) The parts of this question must be completed in order. This part will be available when you complete the part above.
Expand question part (c) The parts of this question must be completed in order. This part will be available when you complete the part above.
Expand question part (d) The parts of this question must be completed in order. This part will be available when you complete the part above.
Explanation / Answer
Mark up is calculated on product cost to cover all remianing expenses and return on investments
Budgeted Volume 3500 units Variable cost Fixed costs Direct Material 100 Direct Labor 65 Variable manufacturing 15 Fixed Manufacturing 87500 Fixed Manufacturing per Unit cost = Cost / units = 87500 / 3500 , = 25 Product cost - it is cost of manufacturing product Variable cost 180 Fixed manufacturing cost 25 Unit Product cost 205.00 Product cost of 3500 units 717500Mark up is calculated on product cost to cover all remianing expenses and return on investments
Mark Up percentage can be calculated as = ( Required return on investment + Selling and administrative expense) / product cost of 3500 units = ( 200000 + 115500) / 717500 43.97% Refer Notes Below Required return on investment = Return rate x investment in assets = 20 % x 1000000 , = 200000 Selling and administrative expense Variable = 3500 units x 10 , = 35000 Fixed = 80500 Total selling and administrative expense = 115500