Water bury, Inc., manufactures and sells RF17, a specialty raft used for whitewater rafting. In 2013, it reported the following:
2013
Units produced and sold ......................... 20,000
Investment .......................................... $ 2,400,000
Full cost per unit ................................... $ 300
Rate of return on investment ..................... 20%
Markup percentage on variable cost ............ 50%
Required
1. What was the selling price in 2013? What was the percentage markup on full cost? What was the variable cost per unit?
2. Waterbury is considering raising its selling price to $348. However, at this price, its sales volume is predicted to fall by 10%. If Waterbury's cost structure (variable cost per unit and total fixed costs) remains unchanged and if its demand forecast is accurate, should it raise the selling price to $348?
3. In 2014, due to increase a competition, Waterbury must reduce its selling price to $315 in order to sell 20,000 units. The manager of the rafts division reduces annual investment to $2,100,000 but still demands a 20% target rate of return on investment. If fixed costs cannot be changed in this time frame, what is the target variable cost per unit?