Acceptance of the order would increase variable selling

Reference no: EM13588849

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?

External reporting for GAAP
Normal (long-run) pricing
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.

Reference no: EM13588849

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