Chapter 22 Checkpeint Name Part A Stone Company is consideri

Chapter 22 Checkpeint Name Part A Stone Company is considering introducing a new line of pagers, targeting the preteen population. Stone believes that if the pagers can be priced competitively at $45, approximately 300,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,000,000 will be required. Stone requires a minimum rate of return of 16% on all investments. Compute the target unit cost per unit of the pager. Part B Jocy\'s Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,000 sessions. The company has invested $2,000,000 in the studio and expects a return on investment (ROI) of 16.5% Budgeted costs for the coming year as followK Per Session Total S60 $400 S50 Direet materials Direct labor Variable overhead Fixed overhead Variable selling and administrative Fixed selling and administrative S40 800,000 Required: (a) Detrmine the total cost per session (b) Determine the desired ROl per session. (c) Calculate the mark-up percentage on the total cost per session. (d) Caleulate the target price per session. Part C Silver Spoon Service repairs commercial food preparation equipment The following budgeted cost data is available for 2016 Material Charges Charges Time Technicians wages and benefits Parts manager\'s salary and benefits Office manager\'s salary and benefits Other overhead Total budgeted costs $500,000 $72,000 112,000 18,000 48,000 35,000 $660,000 S225,000 Silver Sppon has budgeted for 10,000 hours of technician time during the coming year. It desires a $54 profit margin per hour of labor and a 40% profit margin on parts. Silver Spoon estimates the total invoice cost of parts and materials in 2016 will be $500,000 Required: 1. Compute the rate charged per hour of labor 2. Compate the material loading charge 3. Silver Spoon has received a request from Lime Corporation for an estimate to repair a commercial fryer. The company estimates that it would take 20 hours of labor and parts costing $8,000. Compute the total estimated price for the repair job.

Solution

Solution:Part A: Computation of Target Unit Cost per unit of the Pager

Let the Target unit cost of the pager= x

Selling price per unit of pager= $ 45

Number of units sold=3,00,000 units

Therefore total sales=( $ 45*3,00,000 units)=$ 135,00,000

Investment Required =$ 40,00,000

Required rate of return= 16 %( Investments)= 0.16( $ 40,00,000)=$ 6,40,000

Therefore Sales-Desired Return= Full Target Cost

            Full Target Cost=$ 135,00,000-$ 6,40,000=$ 128,60,000

Therefore Target unit cost( x)= Full Target Cost/Number of units

                                                       = $ 128,60,000/3,00,000 units= $ 42.87 /unit of pager.

Solution Part B:

Working Note1: Calculation of Total Cost per session

Direct Materials($ 60* 1000 sessions)---------------------------------$ 60,000

Direct Labour( $ 400* 1000 sessions)--------------------------------$4,00,000

Variable Overhead($50* 1000 sessions)------------------------$ 50,000

Total Variable Cost--------------------------------------------------------$ 5,10,000

Add: Fixed Overhesds----------------------------------------------------$ 8,50,000

Total Production Cost---------------------------------------------------$ 13,60,000

Add:Variable Selling and Administration($ 40*1000 sessions)---$40,000

Add: Fixed Selling and Administration---------------------------------$8,00,000

ThereforeTOTAL COST--------------------------------------------------$ 22,00,000

Total Cost per session= $22,00,000/1000sessions= $ 2,200 per session

Working Note 2: Desired ROI per session

Investment Required= $ 20,00,000 , Expected Return= 16.5 %

Therefore Total Return=$ 3,30,000

Therefore Desired Return per session=$3,30,000/1000 sessions

= $ 330 per session

Working Note3: Mark up Percentage on the Total Cost

=($ 330/$2,200)* 100=15 %

Working Note 4: Target Price per session

Target Price= Full Cost+ Desired Rate of Return=$ 2,200 +$ 330

=$ 2530

Solution: Part C:

Working Note1: Rate charged per hour of Labour

Total Technician wages= $ 5,00,000

Budgeted hours of technician time=10,000 hours

Therefore Cost per hour of labour= $ 5,00,000/10,000 hours=$ 50 per hour

Margin Required per hour of labour--------------------------------=$ 54per hour

Therefore Rate charged per hour of labour=($ 50+$54)-------=$ 104 per hour

Working Note 2: Material Loading Charge

Total Invoice Cost of Parts and Materials= $ 5,00,000

Invoice cost of Parts= Cost of parts+ Margin on cost of parts=$ 72,000+0.4(72,000)

=$ 72,000 + $ 28,800= $ 100,800

Therefore Material Loading Charge= $ 5,00,000-$ 100,800=$ 3,99,200

Working Note 3: Estimated Price for Repair Job

Parts( Cost+Margin=$ 8000+ $ 3,200) =$ 11,200

Labour ( 20 hours*$ 104/hour)=$ 2,080

Therefore Estimated Price for Repair Job=$ 13,280