Anderson Windows Inc. is in the process of setting a target price on its newly designed tinted window. Cost data relating to the window at a budgeted volume of 4,000 units are as follows.

Anderson Windows uses cost-plus pricing methods that are designed to provide the company with a 25% ROI on its tinted window line. A total of $1,016,000 in assets is committed to production of the new tinted window.

Instructions
(a) Compute the markup percentage under absorption-cost pricing that will allow Anderson Windows to realize its desired ROI.
(b) Compute the target price of the window under absorption-cost pricing, and show proof that the desired ROI is realized.
(c) Compute the markup percentage under variable-cost pricing that will allow Anderson Windows to realize its desired ROI.
(d) Compute the target price of the window under variable-cost pricing, and show proof that the desired ROI is realized.
(e) Since both absorption-cost pricing and variable-cost pricing produce the same target price and provide the same desired ROI, why do both methods exist? Isn€™t one method clearly superior to theother?

Transcribed Image Text:

Per Unit $100 $ 70 $ 20 Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $120,000 $10 $102,000