Assignment
1- Acton Company is a price-taker and uses target pricing. Refer to the following information:
|
Production volume
|
602,000
|
units per year
|
|
Market price
|
$30
|
per unit
|
|
Desired operating income
|
17%
|
of total assets
|
|
Total assets
|
$13,700,000
|
|
|
Variable cost per unit
|
$17
|
per unit
|
|
Fixed cost per year
|
$5,500,000
|
per year
|
With the current cost structure, Acton cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that variable costs cannot be reduced, what are the target fixed costs per year? Assume all units produced are sold.
2- Lightning Semiconductors produces 300,000 hi-tech computer chips per month. Each chip uses a component that Lightning makes in-house. The variable costs to make the component are $1.30 per unit, and the fixed costs are $1,200,000 per month. The company has been approached by a foreign producer who can supply the component, within acceptable quality standards, for $1.00 each. The fixed costs are unavoidable, and Lightning would have no other use for the facilities currently employed in making the component. What would be the effect on operating income if the company decides to outsource?
3- Revolve Company is a price-taker and uses a target-pricing approach. Refer to the following information:
|
Production volume
|
602,000
|
units per year
|
|
Market price
|
$32
|
per unit
|
|
Desired operating income
|
15%
|
of total assets
|
|
Total assets
|
$13,700,000
|
|
What is the target full product cost in total for the year? Assume all units produced are sold.
4- Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information:
|
Production volume
|
600,000
|
units per year
|
|
Market price
|
$30
|
per unit
|
|
Desired operating income
|
17%
|
of total assets
|
|
Total assets
|
$13,900,000
|
|
What is the desired profit for the year?
5- The income statement for Eagle, Inc. is divided by its two product lines, blankets and pillows, as follows:
|
|
Blankets
|
Pillows
|
Total
|
|
Sales revenue
|
$800,000
|
$700,000
|
$1,500,000
|
|
Variable costs
|
450,000
|
230,000
|
680,000
|
|
Contribution margin
|
350,000
|
470,000
|
820,000
|
|
Fixed costs
|
65,000
|
85,000
|
150,000
|
|
Operating income (loss)
|
$285,000
|
$385,000
|
$670,000
|
If total fixed costs remain unchanged and Eagle, Inc. drops the pillows line, operating income will decrease by $470,000. True OR False.