Cost-plus, target pricing, working backward. TinRoof, Inc, manufactures and sell

Question

Cost-plus, target pricing, working backward. TinRoof, Inc, manufactures and sells a do-it-yourself storage shed kit. In 2012, it reported the following: Units produced and sold Investment Markup percentage on full cost Rate of return on investment Variable cost per unit 3,200 $2,400,000 8% 12% $500 Requ 1. What was TinRoof's operating income in 2012? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost? 2. TinRoof is considering increasing the annual spending on advertising by $175,000. The managers believe that the investment will translate into a 10% increase in unit sales. Should the company make the invest- ment? Show your calculations. 3. Refer back to the original data. In 2013, TinRoof believes that it will only be able to sell 2,900 units at the ice calculated in requirement 1. Management has identified $125,000 in fixed cost that can be eliminated If Tin Roof wants to maintain an 8% markup on full cost, what is the target variable cost per unit?

Explanation / Answer

Total cost * 8% = 12% of 2400000

so total cost = 288000/8%

= 3600000

now income statement -

1.

2. Calcualtion of Net income -

3. suppose total cost = x and variable cost = y

so x + x*8% = 2900*1215

now x = variable cost + fixed cost

[y + (2000000-125000)] + (y+1875000)*8% = 2900*1215

y + 1875000+ 0.08y + 150000 = 3523500

1.08y = 1498500

y = 1498500/1.08

= 1387500

per unit variable cost = 1387500/2900

= 478.44

So target variable cost per unit = 478.44

Please comment in case of further clarification required.

Particulars Amt. $ variable cost (500*3200) 1600000 add Fixed cost(Total cost - variable cost) 2000000 Total cost 3600000 add Profit( 12% of 2400000) 288000 sales price 3888000

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