CMAII Assignment $3$

Question $1$

Fancy Company has a total capital investment of $$1,000,000$ and requires a $8\%$ target return on

investment. It has budgeted sales of $1,000$ units of the only product with the following budgeted

costs:

Required:

a$)$ Compute the selling price Fancy Company should charge to generate profits equal to the

required target return on investment.

b$)$ Based on your answer in $($a$),$ compute the average markup percentage for setting prices as a

percentage of: Price $-FC100\%$

$($i$)$ The full cost of the product

$($ii$)$ The variable cost of the product

$($iii$)$Variable manufacturing costs

$($iv$)$Total manufacturing costs

c$)$ A competitor initiates a price war and cut the price of a similar product to $$299.$ Fancy

Company reacts and wants to follow by cutting the price to $$290.$ It is expected that sales will

increase by $5\%.$ How much should it reduce the full cost per unit to keep the return on

investment unchanged?