Pricing Decision From Horngrens cost accounting a managerial emphasis by Madhav V. Rajan Srikant M. Datar.

Gina plans to open a juice bar in 2023, offering bottled cold-pressed juice in a variety of fruit and vegetable recipes. Although there are multiple recipes, the cost differences are insignificant, and each bottle of cold- pressed juice will be sold at the same price. Gina has allocated $1,250,000 as capital expenditure (Capex). Gina expects to produce and sell 250,000 bottles with the following expected cost: Variable production costs $4 per bottle Fixed production costs $30,000 Variable sales costs $1 per bottle Fixed sales costs $60,000 Fixed admin and operational cost $20,000 Required: a. Assuming that Gina prices the bottled juice at full cost plus a markup to generate profits equal to the target return on capital expenditure. What is the target operating income? Gina requires a 25% return on its Capex investment. (3%) 11. How much is the full cost per bottle? (49%) 111. What is the selling price Gina needs to charge to earn the target operating income? Calculate the markup percentage on the full cost. (59%) b. Assuming that Gina prices the cases based on a target pricing approach. 1 . Gina believes that it can successfully sell the product for $6 per bottle. The target operating income is 30% of revenue. Calculate the target full cost under this approach. Does the current expected full cost estimate meet Gina's target full cost? (59%) 11. Explain the Value Engineering strategy that Gina could implement to achieve the target full cost. (3%)