Accepting Business at a Special Price Palomar Battery Company expects to operate
ID: 2520238 • Letter: A
Question
Accepting Business at a Special Price
Palomar Battery Company expects to operate at 90% of full capacity during April. The total manufacturing costs for April for the production of 37,800 batteries are budgeted as follows:
The company has an opportunity to submit a bid for 2,000 batteries to be delivered by April 30 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during April or increase the selling or administrative expenses.
Round your answers to the nearest cent.
a. What is the April budgeted cost per battery for the production of 37,800 batteries?
$ per battery
b.What is the unit cost below which Palomar Battery Company should not go in bidding on the government contract?
$______ per unit
Q2
Toyota Motor Corporation (TM) uses target costing. Assume that Toyota marketing personnel estimate that the competitive, average selling price for the Rav4 in the upcoming model year will need to be $28,400. Assume further that the Rav4’s total unit cost for the upcoming model year is estimated to be $23,300 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost).
a. What price will Toyota establish for the Rav4 for the upcoming model year?
$
b. What impact will target costing have on Toyota, given the assumed information?
Toyota will be able to add a 25% percent markup on its product cost and still remain competitive.
Toyota will have to remove $580 from its total costs in order to maintain competitive pricing within its profit objectives.
Toyota can increase its total costs by $580 and still maintain competitive pricing.
Toyota will no longer be able to produce the Rav4 model since it cannot sell it at a profit.
Direct materials $334,200 Direct labor 122,900 Variable factory overhead 34,300 Fixed factory overhead 132,300 Total manufacturing costs $623,700Explanation / Answer
Solution for First Question:-
Note: Solution for first question is allowed as per Chegg policy.
a. The April budgeted cost per battery for the production of 37,800 batteries is $623700 / 37800 = $ 16.50 per unit