Use the following information for questions 35 and 36: Acorn Products currently
ID: 2600682 • Letter: U
Question
Use the following information for questions 35 and 36: Acorn Products currently sells small boats for $360. It has costs currently assigned to it of $280. A competitor is bringing a new small boat to market that will sell for $300. Management believes it must lower the price to $300 to compete in the market for small boats. Marketing believes that the new price will cause sales to increase by 10 percent, even with a new competitor in the market. Acorn's sales are currently 100,000 per year. 35) Under cost-plus pricing, what is the required selling price to achieve a 15% markup? A) $322 B) $285 C) $360 D) $300 E) none of the above 36) Under target costing, what is the target cost to achieve a 20% return on sales target? A) $ 288 B) $ 240 C) $ 224 D) $ 280 E) None of the aboveExplanation / Answer
35. Answer: Option A) $322
Costs = $280
Required mark-up = 15% on cost
Required selling price = $280 x (1 + 0.15) = $280 x 1.15 = $322
36. Answer: Option B) $240
Costs = $280
Required mark-up = 20% on sales
Target cost = Sales – 20% on sales = $300 – (20% x $300) = $300 - $60 = $240