P20-32. Price Setting: Multiple Products: Augusta Golf, Inc. produces a wide variety of golng equipment. In the past, product managers set

prices using their professional judgment. Jack Woods, the new controller, believes this practice has led

to the signicant underpricing of some products (with lost prots) and the signicant overpricing of

other products (with lost sales volume). You have been asked to assist Woods in developing a corporate

approach to pricing. The output of your work should be a cost-based formula that can be used to develop

initial selling prices for each product. Although product managers are allowed to adjust these prices to

meet competition and to take advantage of market opportunities, they must explain such deviations in

writing. The following 2014 cost information from the accounting records is available...

Manufacturing costs Selling & Admin costs

Variable costs..... 350,000 75,000

Fixed costs......... 100,000 200,000

2014 annual earnings 120,000

Target Profit 150,000

Variable manufacturing costs 150

Fixed manufacturing costs 50

TOTAL 200

Required

a. Determine the standard markup percentage for each of the following cost bases. Round answers to

two decimal places.

1. Full costs, including xed and variable manufacturing costs, and xed and variable selling and

administrative costs.

2. Manufacturing costs plus variable selling and administrative costs.

3. Manufacturing costs.

4. Variable costs.

5. Variable manufacturing costs.

b. Explain why the markup percentages become progressively larger from requirement (a), parts (1)

through (5).

c. Determine the initial price of a set of Tiger Irons using the manufacturing cost markup and the

variable manufacturing cost markup.

d. Do you believe the controllers approach to product pricing is reasonable? Why or why not?