Reference no: EM132517416

Cedarburg Lumber specializes in building high-end outdoor treehouses for kids. It builds the components in its factory, then ships the parts to the customer's home. It has contracted with carpenters across the country to do the final assembly. Each year, Cedarburg comes out with a new model. The year's model looks like a miniature castle, complete with spires and a drawbridge.

The following cost estimates for this new product have been provided by the accounting department for a budgeted sales volume of 1,000 units:

Direct Materials. $840 per unit

Direct Labour $1,600 per unit

Variable MOH $400 per unit

Variable Selling & Admin $510 per unit

Fixed MOH $540,000 in total

Fixed Selling & Admin $320,000 in total

• Cedarburg uses cost-plus pricing to set its selling price. Management also wants to know the target price to provide a 25% ROI on invested assets of $4,200,000.

Required:

Question a) Calculate the markup percentage AND target selling price on this new playhouse, assuming the 25% ROI is achieved

Question b) Re-calculate the markup percentage AND target selling price assuming the sales volume is 1,500 units instead of 1,000

Question c) What other options does Cedarburg have to price its products? What internal and external factors should they consider?