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Example 3: ABC Ltd. Recently began production of a new product . M, which required the investment of * 1600000 in assets. The costs of
Example 3: ABC Ltd. Recently began production of a new product . M, which required the investment of * 1600000 in assets. The costs of producing and selling 80000 units of Product Mare estimated as follows: Variable Costs: Direct Materials Direct Labour Factory overhead Selling and administrative expenses 10.00 6.00 4.00 5.00 Total 25.00 (Per unit) Fixed Costs: Factory Overhead Selling and administrative expenses 800000 400000 ABC Ltd is currently considering establishing a selling price for Product M. The President of ABC Ltd has decided to use the cost-plus approach to product pricing and has indicated that Product M must earn a 10% rate of return on invested assets. Instructions: (0) Determine the amount of desired profit from the production and sale of Product M. Assuming that the total cost concept is used, determine (a) the cost amount per unit, (b) the mark-up percentage, and (c) the selling price of Product M. Assuming that the total manufacturing cost concept is used, determine (a) the cost amount per unit, (b) the mark up percentage, and (c) the selling price of Product M. (iv) Assuming that the variable cost concept is used, determine (a) the cost amount per unit, (b) the mark up percentage, and (c) the selling price of Product M. Assume that for the current year, the selling price of Product M was * 42 per unit. To date, 60,000 units have been produced and sold, and analysis of the domestic market indicates that 15,000 additional units are expected to be sold during the remainder of the year. Recently, ABC Ltd received an offer from XYZ Ltd for 4,000 units of product Mat 28 each. XYZ Ltd. will market the units in Korea under its own brand name, and no selling and administrative expenses associated with the sale will be incurred by ABC Ltd. The additional business is not expected to affect the domestic sales of Product M, and the additional units could be produced during the sale to XYZ Ltd (b) Based upon the differential analysis report in (a), should the proposal be current year, using existing capacity. (a) Prepare a differential analysis report of the proposed accepted
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