Trailrider Corporation manufactures part no. 67, which is used in the production of mountain bikes. Per-unit information about part no. 67 follows.Prevailing market price$33Direct materials14Direct labor6Manufacturing overhead7Selling and administrative expenses3Trailrider has traditionally used a 20% markup on total cost to arrive at a reasonable selling price. The company, though, has noticed a sizable drop in sales volume during the last few quarters, which it attributes to new entrants in the marketplace.Required:A. Compute the current selling price of part no. 67.B. If management desired to meet the prevailing market price and maintain the current rate of profit on sales, what must happen to the company's total manufacturing costs? By how much?
What will be an ideal response?
A. The current selling price is $36: ($14 + $6 + $7 + $3 = $30; $30 × 120% = $36).
B. The company's markup is $6 ($36 - $30), which is 16.67% of the current $36 selling price ($6 ÷ $36). To achieve a 16.67% markup on a $33 selling price, Morrow must reduce its costs by $2.50.
| Prevailing market price | $33.00 |
| Less: 16.67% markup ($33 × 16.67%) | 5.50 |
| Target cost | $27.50 |
| ? | ? |
| Current cost | $30.00 |
| Less: Target cost | 27.50 |
| Required cost reduction | $2.50 |
You might also like to view...
Adjusting entries make it possible to enter transactions of the succeeding accounting period in a routine manner
Indicate whether the statement is true or false
Which of the following is a difference between component parts and supplies?
a. Component parts require extensive processing before they become part of another product, while supplies do not. b. Component parts are consumable items, while supplies are finished items. c. Component parts become part of a final product, while supplies do not. d. Component parts are inexpensive when compared to other business products, while supplies are expensive.
The agent may be subject to liability to her principal for breach of the duty of obedience if she:
a. entered into an authorized contract and the principal has changed her mind. b. delegates her authority in any way and under any circumstances. c. committed a tort for which the principal is now liable. d. All of these.
Please explain whether a paralegal/legal assistant could be held personally liable for committing legal malpractice.
What will be an ideal response?