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### ACC560 Chapter 8

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E8-4 E8-5 E8-10 E8-16 P8-1A P8-6A

E8-4 Kaspar Corporation makes a commercial-grade cooking griddle. The following
information is available for Kaspar Corporation’s anticipated annual volume of 30,000
units.

The company uses a 40% markup percentage on total cost.
Instructions
(a) Compute the total cost per unit.
(b) Compute the target selling price.

E8-5 Paige Corporation makes a mechanical stuffed alligator that sings the Martian national
anthem. The following information is available for Paige Corporation’s anticipated
annual volume of 500,000 units.

The company has a desired ROI of 25%. It has invested assets of \$26,000,000.
Instructions
(a) Compute the total cost per unit.
(b) Compute the desired ROI per unit.
(c) Compute the markup percentage using total cost per unit.
(d) Compute the target selling price.

E8-10 Wasson’s Classic Cars restores classic automobiles to showroom status. Budgeted
data for the current year are:

The company anticipated that the restorers would work a total of 12,000 hours this
year. Expected parts and materials were \$1,260,000.
In late January, the company experienced a fire in its facilities that destroyed most of
the accounting records. The accountant remembers that the hourly labor rate was \$70.00

Instructions
(a) Determine the profit margin per hour on labor.
(b) Determine the profit margin on materials.
(c) Determine the total price of labor and materials on a job that was completed after the
fire that required 150 hours of labor and \$60,000 in parts and materials.

E8-16 Crede Inc. has two divisions. Division A makes and sells student desks. Division B
Each desk has a reading lamp as one of its components. Division A can purchase reading
lamps at a cost of \$10 from an outside vendor. Division A needs 10,000 lamps for the
coming year.

Division B has the capacity to manufacture 50,000 lamps annually. Sales to outside customers
are estimated at 40,000 lamps for the next year. Reading lamps are sold at \$12 each.
Variable costs are \$7 per lamp and include \$1 of variable sales costs that are not incurred
if lamps are sold internally to Division A. The total amount of fixed costs for Division B is
\$80,000.

Instructions
Consider the following independent situations.
(a) What should be the minimum transfer price accepted by Division B for the 10,000
lamps and the maximum transfer price paid by Division A? Justify your answer.
(b) Suppose Division B could use the excess capacity to produce and sell externally 15,000
units of a new product at a price of \$7 per unit. The variable cost for this new product is
\$5 per unit. What should be the minimum transfer price accepted by Division B for the
10,000 lamps and the maximum transfer price paid by Division A? Justify your answer.
(c) If Division A needs 15,000 lamps instead of 10,000 during the next year, what should
be the minimum transfer price accepted by Division B and the maximum transfer
price paid by Division A?

P8-1A Dewitt Corporation needs to set a target price for its newly designed product M14–
M16. The following data relate to this new product.

These costs are based on a budgeted volume of 80,000 units produced and sold each year.
Dewitt uses cost-plus pricing methods to set its target selling price. The markup percentage
on total unit cost is 30%.

Instructions
(a) Compute the total variable cost per unit, total fixed cost per unit, and total cost per
unit for M14–M16.
(b) Compute the desired ROI per unit for M14–M16.
(c) Compute the target selling price for M14–M16.
(d) Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming
that 60,000 M14–M16s are sold during the year.

P8-6A Comm Devices (CD) is a division of Worldwide Communications, Inc. CD produces
pagers and other personal communication devices. These devices are sold to other
Worldwide divisions, as well as to other communication companies. CD was recently
approached by the manager of the Personal Communications Division regarding a request
to make a special pager designed to receive signals from anywhere in the world. The
Personal Communications Division has requested that CD produce 12,000 units of this
special pager. The following facts are available regarding the Comm Devices Division.

 Selling price of standard pager \$95 Variable cost of standard pager \$50 Additional variable cost of special pager \$30

Instructions
For each of the following independent situations, calculate the minimum transfer price, and
determine whether the Personal Communications Division should accept or reject the offer.

(a) The Personal Communications Division has offered to pay the CD Division \$105 per
pager. The CD Division has no available capacity. The CD Division would have to forgo
sales of 10,000 pagers to existing customers in order to meet the request of the Personal
Communications Division.

(b) The Personal Communications Division has offered to pay the CD Division \$150 per
pager. The CD Division has no available capacity. The CD Division would have to forego
sales of 16,000 pagers to existing customers in order to meet the request of the Personal
Communications Division.

(c) The Personal Communications Division has offered to pay the CD Division \$100 per
pager. The CD Division has available capacity.