A company has $50 per unit in variable costs and $1,200,000 per year

1. A company has $50 per unit in variable costs and $1,200,000 per year in fixed costs. Demand is estimated to be 110,000 units annually. What is the price if a markup of 40% on total cost is used to determine the price?

2. Tory Company sells a single product. Troy estimates demand and costs at various activity levels as follows:

Units Sold Price Total Variable Costs Fixed Costs

120,000 $48 $3,000,000 $1,000,000

147,500 $45 $3,500,000 $1,000,000

160,000 $40 $4,000,000 $1,000,000

180,000 $35 $4,500,000 $1,000,000

200,000 $30 $5,000,000 $1,000,000

How much profit will Troy have if a price of $45 is charged?

3. The Falling Snow Company is considering production of a lighted world globe that the company would price at a markup of 0.25 above full cost. Management estimates that the variable cost of the globe will be $60 per unit and fixed costs per year will be $240,000.

Assuming sales of 1,200 units, what is the full selling price of a globe with a 0.25 markup?

4. PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:

Direct material $625,000

Direct labor 375,000

Variable overhead 125,000

Fixed overhead 1,500,000

Total cost $2,625,000

At the start of the current year, the company received an order for 3,800 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On the one hand they welcome the order because they currently have excess capacity. Also, this is the company’s first international order. On the other hand, the company in China is willing to pay only $130 per unit.

What will be the effect on profit of accepting the order?

Here’s the SOLUTION

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