An investor decides to invest $2,500,000 in Company Y. The investor demands that Company Y should continue to produce Product A only, and also asks for a return of 30%. The manufacturing costs information follows costs in Table Q (therefore, ignore overhead calculations using activity-based costing). Assume the manufacturing overhead costs are variable costs. Annual sales volume for Product A remains 4,000 for coming years. The selling and administrative expenses follow Table W, 30% of which is variable and 70% is fixed. If the company decides to follow what the investor suggested, (A) Calculate the variable cost per unit, fixed cost per unit, the manufacturing cost per unit, and total cost per unit. (B) Calculate the target selling prices and mark-up percentages, using both the total cost-plus and absorption cost-plus methods.

Based on the pricing calculations, (1) briefly discuss how the new price compares to the original price of Product A.

(2) If managers are reluctant to change the original price of Product A. Which desired rate of return on investment can lead to the original price of Product A? Show calculation.

Table W

Income Statement
Year Ended Dec. 31, 2019
	Product A	Product B	Total
Sales	$5,040,000	$19,800,000	$24,840,000
Less: Cost of Goods Sold	($3,760,000)	($15,840,000)	($19,600,000)
Gross Margin	$1,280,000	$3,960,000	$5,240,000
Less: Selling and administrative expenses	($780,000)	($264,000)	($1,044,000)
Net Profit (a)	$500,000	$3,696,000	$4,196,000
Units produced and sold (b)	4,000	22,000
Net Profit per unit (a / b)	$125	$168

Table Q: Company Y Unit Manufacturing Costs

Labor usage for Product A and Product B
	Product A	Product B
Direct labor I hours	3.5	1.5
Direct labor I cost / hour	$20	$20
Direct labor II hours	4	8
Direct labor II cost / hour	$30	$30

Manufacturing Costs per unit for Product A and Product B
	Product A	Product B
Direct Materials	$650	$250
Direct Labor I	$70	$30
Direct Labor II	$120	$240
Manufacturing Overhead	$100	$200
Manufacturing costs per unit	$940	$720