Question
Part 3: Car Pricing Two weeks later, Mr. Yukio met Mr. Kane to discuss new prices for each car model based on the report submitted
Part 3: Car Pricing Two weeks later, Mr. Yukio met Mr. Kane to discuss new prices for each car model based on the report submitted by Mr. Kane concerning the cost per unit of each car model under the new costing system (See Part 1). Mr. Yukio shared his plan with Mr. Kane about pricing the cars at full cost plus a markup on full cost to earn the target return on investment. He informed Mr. Kane that the capital invested in CLR, CLO, CLV and CLM is $1,000,000, $1,000,000, $2,000,000 and $2,000,000 respectively and the target return on investment is 20% for all models. He further told Mr. Kane that the company has no fixed costs and expects no inventories. That is, it is expected that all units produced will be sold by the end of the current year. Given this, Mr. Yukio asked Mr. Kane to help him determine the prices that should be charged for each car model. Required: Assuming you are Mr. Kane: a) Help Mr. Yukio determine the target prices that should be charged for each car model according to his pricing plan. (20%) b) Calculate the markup as a percentage of the full cost of each car model. c) Calculate the operating income of each car model based on the target prices. d) Lastly, determine which car model is most profitable based on the profit margin. Explain your answer.
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