Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 13, Problem 13.29P
Cost-plus, target
Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment.
Expected costs for next year are:
| Variable production costs | $3.00 per case |
| Variable marketing and distribution costs | $2.00 per case |
| Fixed production costs | $400,000 |
| Fixed marketing and distribution costs | $700,000 |
| Other fixed costs | $500,000 |
Sweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital.
- 1. What is the target operating income? Required
- 2. What is the selling price Sweet Tastings needs to charge to earn the target operating income? Calculate the markup percentage on full cost.
- 3. Sweet Tastings is considering increasing its selling price to $13 per case. Assuming production and sales decrease by 10%, calculate Sweet Tastings’ return on investment. Is increasing the selling price a good idea?
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Sweet - o- licious makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet - o- licious makes a variety of candy, the cost differences are
insignificant, and the cases all sell for the same price. Sweet - o- licious has a total capital investment of $11,000,000. It expects to produce and sell 700,000 cases of candy next year.
Sweet - o- licious requires a 10% target return on investment. Expected costs for next year are as follows:
E (Click the icon to view the costs.)
Sweet - o- licious prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital.
Read the requirements.
Requirement 1. What is the target operating income? (Enter the percentage as a whole number.)
Capital investment
Target return on investment
Target operating income
2$
11,000,000
10 %
2$
1,100,000
Requirement 2. What is the selling price Sweet - o- licious needs to charge to earn the target operating income? Calculate the markup…
Cost-plus, target return on investment pricing. Sweet
Tastings makes candy bars for vending machines and sells them
to vendors in cases of 30 bars. Although Sweet Tastings makes a
variety of candy, the cost differences are insignificant, and the
cases all sell for the same price.
Sweet Tastings has a total capital investment of $10,000,000.
It expects to produce and sell 400,000 cases of candy next year.
Sweet Tastings requires a 12% target return on investment.
Expected costs for next year are:
Variable production costs
Variable marketing and distribution costs
Fixed production costs
Fixed marketing and distribution costs
Other fixed costs
$3.00 per case
$2.00 per case
$400,000
$700,000
$500,000
Sweet Tastings prices the cases of candy at full cost plus markup
to generate profits equal to the target return on capital.
Required:
1.
2.
What is the target operating income?
What is the selling price Sweet Tastings needs to charge
to earn the target operating income? Calculate the markup…
Cost-plus, target return on investment pricing. Sweet Tastings makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet Tastings makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price.
Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment. Expected costs for next year are:
Chapter 13 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 13 - What are the three major influences on pricing...Ch. 13 - Relevant costs for pricing decisions are full...Ch. 13 - Describe four purposes of cost allocation.Ch. 13 - How is activity-based costing useful for pricing...Ch. 13 - Describe two alternative approaches to long-run...Ch. 13 - What is a target cost per unit?Ch. 13 - Describe value engineering and its role in target...Ch. 13 - Give two examples of a value-added cost and two...Ch. 13 - It is not important for a company to distinguish...Ch. 13 - Prob. 13.10Q
Ch. 13 - Describe three alternative cost-plus pricing...Ch. 13 - Give two examples in which the difference in the...Ch. 13 - What is life-cycle budgeting?Ch. 13 - What are three benefits of using a product...Ch. 13 - Prob. 13.15QCh. 13 - Which of the following statements regarding price...Ch. 13 - Value-added, non-value-added costs. The Magill...Ch. 13 - Target operating income, value-added costs,...Ch. 13 - Target prices, target costs, activity-based...Ch. 13 - Target costs, effect of product-design changes on...Ch. 13 - Target costs, effect of process-design changes on...Ch. 13 - Cost-plus target return on investment pricing....Ch. 13 - Cost-plus, target pricing, working backward....Ch. 13 - Life-cycle budgeting and costing. Arnold...Ch. 13 - Considerations other than cost in pricing...Ch. 13 - Cost-plus, target pricing, working backward. The...Ch. 13 - Value engineering, target pricing, and target...Ch. 13 - Target service costs, value engineering,...Ch. 13 - Cost-plus, target return on investment pricing....Ch. 13 - Cost-plus, time and materials, ethics. C S...Ch. 13 - Cost-plus and market-based pricing. Georgia Temps,...Ch. 13 - Cost-plus and market-based pricing. (CMA, adapted)...Ch. 13 - Life-cycle costing. Maximum Metal Recycling and...Ch. 13 - Airline pricing, considerations other than cost in...Ch. 13 - Prob. 13.35PCh. 13 - Ethics and pricing. Instyle Interior Designs has...Ch. 13 - Value engineering, target pricing, and locked-in...
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