Reference no: EM132547720

Question 1: Plucky Company recently entered into a contract in which Plucky charges a price of actual cost plus 20%. If the price charged based on this formula is less than the target price of $4,500,000, Plucky is entitled to also receive 50% of the difference between the actual cost and the cost that would lead to the formula price equaling the target price. Plucky incurred an actual cost of $3,600,000. How much will Plucky make from the contract?

a) $4,320,000

b) $4,395,000

c) $4,410,000

d) $4,500,000

Question 2: The Presidio Company has redesigned one of its products and is deciding on the pricing for the redesigned product. The total product cost to produce the normal volume of 10,000 units is $200,000. Total selling costs are estimated to be $80,000. The target return on investment is 25% and annual investment required to make and sell the normal volume of 10,000 units is $100,000. The company uses the absorption costing approach to compute the mark-up percentage when setting the target price. What is the mark-up percentage?

a) 48.5%

b) 50.0%

c) 52.5%

d) 90.0%

Question 3: Heiko Company, a manufacturer of moderately priced timepieces, would like to introduce a new electronic watch. To compete effectively, Heiko cannot price the watch at more than €30. The company requires a return on investment of 15% on all new products. The plan is to produce and sell 20,000 watches each year. This would require a €500,000 investment. What is the target cost per watch?

a) €26.25

b) €28.00

c) €29.50

d) €30.00