• Grillie Grill sells barbeque grills in an increasingly competitive environment. For a number of years, management has followed a successful policy of marking up goods by 20% of COST, which is the company`s desired gross margin.

One of the products is Isaw grill with a direct material cost of $8, direct labor cost of $5 and manufacturing overhead of $7. This Isaw grill is designed to compete against others in the marketplace that wholesale for an average of $22. In the last year, management has observed a decline in the unit sales volume despite a very favorable write-up.

REQUIRED:

a. Explain a probable cause of the decline in unit sales volume

b. If the firm uses TARGET COSTING, what would likely be the selling price?

c. What must happen to the current manufacturing cost if Grillie Grill is to achieve its 20% gross margin based on SALES? By how much?

• Manufacturing firms utilize the concept of the theory of constraints and emphasize speed of throughput in their manufacturing operations. REQUIRED: Discuss whether the concept of throughput in the theory of constraints is appropriate for retail and service industries. How would or could you apply this management technique to a retail stores?

1. De Blaze and associates develops hotels in resort locations. the company is exploring the construction of a new facility that would have significant meeting and banquet space for conventions and conferences, and sleeping rooms that average 800 square feet. The accounting department estimates that the land and building will cost $50 and $100 per square foot, respectively. Other expenses during construction expected to total 30% of land and construction cost. Initial expenditures for each room are:

• sleeping room 10,000
• supplies 1500
• marketing 5000
• Accounting department suggested 10% to be added to the total of all preceding costs to allow for estimation errors. Construction is anticipated to take two years. The firms pricing is consistent with that of the industry leaders. Room rate is 2% of $1000 of cost. upon completion, comparable facilities are expected to charge $240 per day.
• REQUIRED:
• a. compute the total cost of a sleeping room at the new facility
• b. Is the company`s room rate competitive? Explain
• c. If needed, De Blaze will look for ways to cut expenditures. Briefly explain the difference between cost-plus pricing and target costing.
• d. other than operating costs and room revenues, what else should De Blaze consider before a final decision is made about the facility?