BRIEF EXERCISES

BE 146
Home Appliances Co. wants to introduce a new digital display, laser driven iron to the market. The
estimated unit sales price is $85. The required investment is $3,500,000. Unit sales are expected
to be 300,000 and the minimum required rate of return on all investments is 15%.

Instructions
Compute the target cost per iron.

Sales (300,000*85) 25,500,000

Less: ROI (3,500,000*15%) 525,000
Target Cost 24,975,000
Number of Irons 300,000
Target cost per iron 83.25
BE 147
Talia Corp. produces digital cameras. For each camera produced, direct materials are $20, direct
labor is $16, variable manufacturing overhead is $12, fixed manufacturing overhead is $28, variable
selling and administrative expenses are $10, and fixed selling and administrative expenses are
$24.

Instructions
Compute the target selling price assuming a 40% markup on total per unit cost.

Direct Materials 20
Direct Labor 16
Variable Manufacturing OH 12
Fixed Manufacturing OH 28
Variable Selling & Admin Exp. 10
Fixed Selling & Admin Exp. 24
Total Cost 110
40% mark-up on total per unit cost 44
Target Selling Price 154
BE 148
Tina Company expects to produce 100,000 products in the coming year and has invested
$20,000,000 in the equipment needed to produce the products. Tina requires a return on
investment of 10%.

Instructions
What is Tina’s ROI per unit?

Total Investment * ROI percentage)

ROI per unit =
Numberof Units
20,000,000 * 10%
=
100,000
= 20
has invested
a return on
BE 149
NayTag produces washing machines and dryers. The following per unit information is available for
washing machines: direct materials, $72; direct labor, $48; variable manufacturing overhead, $36;
fixed manufacturing overhead, $84; variable selling and administrative expenses, $24; fixed selling
and administrative expenses, $56. NayTag desires an ROI per unit of $80.

Instructions
Compute NayTag’s markup percentage using a total cost approach.

Markup Percentage = 80
72 + 48 +36 + 84 + 24 + 56
= 25%
BE 150
MAC Company has invested $3,000,000 in assets to produce 10,000 units of its finished product.
MAC’s budget for the year is as follows: net income, $360,000; variable costs, $2,400,000; fixed
costs, $300,000.

Instructions
Compute each of the following:
1. Budgeted ROI.
2. Markup percentage using a total cost approach.

1 2
ROI = Net Income/Invested Assets Markup Percentage = 360,000
= 360,000/3,000,000 2,400,000 + 300,000
= 12% = 13.33%
BE 151
During the current year Greeve Corporation expects to produce 10,000 units and has budgeted
the following: net income $300,000; variable costs $900,000; and fixed costs $350,000. It has
invested assets of $1,750,000. The company's budgeted ROI was 20%. What was its budgeted
markup percentage using a full-cost approach?

ROI per unit = Total Investment * ROI percentage) Total unit cost = Variable Cost + Fixed Cost
Number of Units Number of Units
= 1,750,000 * 20% = 900,000 + 350,000
10,000 10,000
= 35 = 125

Markup Percentage = 35
125
= 28%
 e Cost + Fixed Cost
umber of Units
BE 152
Horton Small Engine Repair charges $45 per hour of labor. It has a material loading percentage
of 40%. On a recent job replacing the engine of a riding lawnmower, Horton worked 4 hours and
used parts with a cost of $400. Calculate Horton's total bill.

Cost of used parts 400

Hour per labor 45
Working hours 4 180
580
Cost of used parts 400
Mat. Loading Percentage 40% 160
Total Bill 740
percentage
4 hours and
BE 153
On a recent job repairing a small boat engine, Marine Repairs Company worked 21 hours and used
parts with a cost of $1,500. Marine Repairs Company charges $80 per hour of labor and has a
material loading charge of 60%.

Instructions
Calculate the total bill for repairing the small boat engine.

Cost of used parts 1,500

Hour per labor 80
Working Hours 21 1,680
3,180
Cost of used parts 1,500
Mat. Loading Percentage 60% 900
Total Bill 4,080
BE 154
Alma and Associates, a new consulting service, recently received a bill for repairs on its computers
totaling $2,280. Alma thinks it may have been overcharged and is trying to recreate the components
of the bill. She knows the hourly rate is $75 and 15 hours of labor was charged. She also knows
$700 of parts were replaced.

Instructions
Compute the material loading charge percentage the repair service used.

Total Repair Bill 2,280

Less: Labor Charges (15hours x 75) 1,125
Total Charge for parts 1,155
Less: Part Cost 700
Cost of Loading Charge 455
Part Cost 700
Loading Charge Percentage 65%
BE 155
Freberg Company, a division of Dudge Cars, produces automotive batteries. Freberg sells the
batteries to its customers for $92 per unit. The variable cost per unit is $42, and fixed costs per unit
are $16. Top management of Dudge Cars would like Freberg to transfer 30,000 batteries to another
division within the company at a price of $54. Freberg is operating at full capacity.

Instructions
Compute the minimum transfer price that Freberg should accept.

Minimum transfer price = VariableCost + OpportunityCost

MTF = (92-42) + 54
MTF = 104