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Maritime serives corporation will soon enter a very competitive marketplace in which it will have limited influence over the price that are charged. Management and consultant are currently working to find-tune the companys sole services which they hope will generate a 12 percent first-year return (profit) on the firms $27,000,000 assest investment. Although the normal return in MSC industry is 14 percent, executives are willing to accept the lower figure because of various start-up inefficiencies. The following information is available for the first-year operation:

Hours of service to be provided: 25,000 Anticipated variable cost per service hour: $33 Anticipated fixed cost: $2,850,000 per year

REQUIRED

Assume that management is contemplating what price to charge in the first year of operation. The company can take its cost and add a markup to acheive 12 percent return; alternatively, it can use target costing. Given MSC marketplace, which approach is probably more appropriate? Why?How much profit must MSC generate in the first year to acheive a 12 percent return?Calculate the revenue per hour that MSC must generate in the first year to acheive a 12 percent return.Assume that prior to the start of business in year 1, management conducted a planning exercise to determine if MSC could attain a 14 percent return in year 2. If the competitve pressures dictate a maximum selling price of $169 per hour and service hours and the variable costs per service hour are the same as the amounts anticipated in year 1, calculate the following amounts to determine if this return can be achievedHow much profit must MSC generate in the second year to achieve a 14 percent return?Calculate the revenue per hour that MSC must generate in the second year to achieve a 14 percent return.Maritimeserives corporation will soon enter a very competitive marketplace in which itwill have limited influence over the price that are charged. Management andconsultant are currently working to find-tune the companys sole services whichthey hope will generate a 12 percent first-year return (profit) on the firms$27,000,000 assest investment. Although the normal return in MSC industry is 14percent, executives are willing to accept the lower figure because of variousstart-up inefficiencies. The following information is available for thefirst-year operation:

Hours of service to be provided: 25,000 Anticipated variable cost perservice hour: $33 Anticipated fixed cost: $2,850,000per year

REQUIRED

1. Assume that management is contemplatingwhat price to charge in the first year of operation. The company can take itscost and add a markup to acheive 12 percent return; alternatively, it can usetarget costing. Given MSC marketplace, which approach is probably moreappropriate? Why?

2. How much profit must MSC generate inthe first year to acheive a 12 percent return?

3. Calculate the revenue per hour thatMSC must generate in the first year to acheive a 12 percent return.

4. Assume that prior to the start ofbusiness in year 1, management conducted a planning exercise to determine ifMSC could attain a 14 percent return in year 2.If the competitve pressures dictate a maximum selling price of $169 perhour and service hours and the variable costs per service hour are the same as theamounts anticipated in year 1, calculate the following amounts to determine ifthis return can be achieved

a. How much profit must MSC generate inthe second year to achieve a 14 percent return?

b. Calculate the revenue per hour thatMSC must generate in the second year to achieve a 14 percent return.

Maritime serives corporation will soon enter a very competitive marketplace in which it will have limited influence over the price that are charged. Management and consultant are currently working to findtune the companys sole services which they hope will generate a 12 percent first-year return (profit) on the firms $27,000,000 assest investment. Although the normal return in MSC industry is 14 percent, executives are willing to accept the lower figure because of various start-up inefficiencies. The following information is available for the first-year operation: Hours of service to be provided: 25,000 Anticipated variable cost per service hour: $33 Anticipated fixed cost: $2,850,000 per year REQUIRED 1. Assume that management is contemplating what price to charge in the first year of operation. The company can take its cost and add a markup to acheive 12 percent return; alternatively, it can use target costing. Given MSC marketplace, which approach is probably more appropriate? Why? 2. How much profit must MSC generate in the first year to acheive a 12 percent return? 3. Calculate the revenue per hour that MSC must generate in the first year to acheive a 12 percent return. 4. Assume that prior to the start of business in year 1, management conducted a planning exercise to determine if MSC could attain a 14 percent return in year 2. If the competitve pressures dictate a maximum selling price of $169 per hour and service hours and the variable costs per service hour are the same as the amounts anticipated in year 1, calculate the following amounts to determine if this return can be achieved a. How much profit must MSC generate in the second year to achieve a 14 percent return? b. Calculate the revenue per hour that MSC must generate in the second year to achieve a 14 percent return