Zones is setting a target price on its new printer. Cost data for the printer writer at a budgeted volume of 3,000 units are as follows.

Per Unit Total

Direct Materials $300

DL 140

VMO 60

Fixed MO $250,000

Variable sell & admin 40

Fixed selling & admin 120,000

Zones uses cost-plus pricing to provide a 40% ROI on its printer line. A total of $800,000 in assets has been committed to the production of the printers.

Instructions:

(a) Calculate the mark up % under the absorption-cost approach that will allow Zones to realize its desired ROI of 40%. Show your calculations to support your answer.

(b) Calculate the target price of the printer under absorption-cost pricing and show proof that the desired ROI is realized. Show your calculations to support your answer

(c) Calculate the mark up % under the variable-cost approach that will allow Zones to realize a desired ROI of 60%. Show your calculations to support your answer

(d) Calculate the target price of the oven under variable-cost pricing and show proof that the desired ROI (60%) is being realized. Show your calculations or support your answer.

(e) Since both absorption-cost pricing & variable-cost pricing produce the same target price and provide the same ROI, why do both methods exist? Isn't one method clearly better than the other? Hint: provide the benefits of each pricing alternative.