Question
Dan's Doors is in the process of setting a target price on its newly designed patio door. Cost data relating to the door at a
Dan's Doors is in the process of setting a target price on its newly designed patio door. Cost data relating to the door at a budgeted volume of 5,000 units is as follows:
Per Unit Total
Direct materials $250
Direct labour 170
Variable manufacturing overhead 80
Fixed manufacturing overhead $500,000
Variable selling and administrative expenses 25
Fixed selling and administrative expenses 375,000
Dan's uses cost-plus pricing that provides it with a 25% ROI on its patio door line. A total of $4,000,000 in assets is committed to production of the new door.
Instructions
a) Calculate each of the following under the absorption approach:
i. Markup percentage needed to provide desired ROI.
ii. Target price of the patio door.
b) Calculate each of the following under the variable cost-plus approach:
i. Markup percentage needed to provide desired ROI.
ii. Target price of the patio door.
SHOW WORK PLEASE.
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