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Peachtree Doors, Inc. is in the process of setting a target price on its newly designed patio door. Cost data relating to the door at
Peachtree Doors, Inc. 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 tion 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 Peachtree 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. 5 marks ii. Target price of the patio door. 5 marks b) Calculate each of the following under the variable cost-plus approach: i. Markup percentage needed to provide desired ROI. 5 marks ii. Target price of the patio door. 5 marks
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