Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Power Engineering Co. specialises in the production of a single product, an engine part that is used in the manufacture of aircraft engines. The
Power Engineering Co. specialises in the production of a single product, an engine part that is used in the manufacture of aircraft engines. The company is renowned for the quality and performance of its product which is sold to aircraft manufactures across the world. As this engine part is a quality product, Power Engineering Co. has some flexibility in pricing their product. The company calculates the price using a variety of pricing methods and then decides on the final price based on current cost information and other relevant strategic matters. Power Engineering Co. expects to manufacture and sell 51,000 parts in the coming year. Since the company was founded over 20 years ago, the demand for the part has grown at a steady pace. Recently however, management are keenly aware of the current unpredictable nature of the aircraft industry giving them concern about increasing costs, declining market share and profits as a direct result of the global Covid-19 pandemic and its impact on the industry. A summary of the key cost information, based on an expected sales level of 51,000 units, is as follows: Expected total sales units of 51,000 Variable manufacturing costs Total Costs Variable selling and administrative costs Facility-level fixed overheads 4,678,000 853,650 2,343,875 673,495 358,000 Fixed selling and administrative costs Batch-level fixed overheads Required: (a) Determine Power Engineering's selling price per unit using the following four methods (rounding to two places of decimal): (i) Using a mark-up of 41% of full manufacturing cost; Using a mark-up of 23% of full life-cycle cost; (ii) (iv) Using a desired gross margin percentage to sales of 38%; and Using a desired life-cycle cost margin percentage to sales of 23%. (8 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started