Reference no: EM13588807

Johnson Industries produces industrial computers for high-precision manufacturing. The following information is available:

		Per Unit	Total
Direct materials		$25.00
Direct labor		$10.00
Variable manufacturing overhead		$6.00
Fixed manufacturing overhead			$36,000
Variable selling and administrative costs		$4.00
Fixed selling and administrative costs			$15,000

The company has a desired ROI of 20%. It has invested assets of $420,000. It anticipates making and selling 3,000 units per year.

REQUIRED:

Part 1: Using the total (full) cost concept, determine the (a) unit cost amount; (b) markup percentage; and (c) unit target selling price.

Part 2:   Using the product (absorption) cost concept, determine the (a) unit cost amount; and (b) markup percentage.

Part 3: Using the variable cost concept, determine the (a) unit cost amount; and (b) markup percentage.

Part 4: What is the target unit selling price under the three cost assumptions?

Part 5:   What else should be considered when setting the product's selling price?

Part 6: Which of the three costing concepts would be most appropriate in each of the following situations?

1. External reporting for GAAP
2. Normal (long-run) pricing
3. Evaluating special orders

Part 7:   Johnson Industries received a special order for 500 computers at $50 each from a foreign customer. Acceptance of the order would increase variable selling costs by $1.70 per unit because of shipping costs, but would not increase fixed costs or interfere with any current orders. Prepare a differential analysis to determine whether the special order should be accepted or not.