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Georgia Gould Bikes 200

Price: $2.50


Georgia Gould Bikes Inc. is in the process of setting a target price on its newly designed
mountain bike. Cost data relating to the bike at a budgeted volume of 20,000 units
are as follows.

Per Unit Total
Direct materials   200
Direct labor   100
Variable manufacturing overhead   30
Fixed manufacturing overhead   1,400,000
Variable selling and administrative expenses   20
Fixed selling and administrative expenses   200,000

Georgia Gould Bikes uses cost-plus pricing methods that are designed to provide the company
with a 25% ROI on its mountain bike line. A total of $20,000,000 in assets is committed
to production of the new mountain bike.

Instructions
(a) Compute the markup percentage under absorption-cost pricing that will allow Georgia
Gould Bikes to realize its desired ROI.
(b) Compute the target price of the bike under absorption-cost pricing, and show proof
that the desired ROI is realized.
(c) Compute the markup percentage under variable-cost pricing that will allow Georgia
Gould Bikes to realize its desired ROI. (Round to three decimal places.)
(d) Compute the target price of the bike under variable-cost pricing, and show proof that
the desired ROI is realized. (Round to nearest dollar.)

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