Chapter 26, Problem 1CPP on Chegg study workbook solutions for Horngren's Managerial Accounting (12th Edition)

Darren Dillard, majority stockholder and president of Dillard, Inc. is working with his top managers on future plans for the company. As the company's managerial accountant, you've been asked to analyze the following situations and data to make recommendations to the management team. Division A of Dillard, Inc. has $5,250,000 in assets. It's yearly fixed costs are $557,000 and the variable costs of its product line are $1.90 per unit. The division's volume is currently 500,000 units. Competitors offer a similar product, at the same quality, to retailers for $4.25 each. Dillard's management team wants to earn a 12% return on investment on the division's assets.

Figure out or explain. 1. What is Division A's target full product cost?

2. Given the division's current costs, will Division A be able to achieve its target profit?

3. Assume Division A has identified ways to cut its variable costs to $1.75 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the division to achieve its target profit?

4. Division A is considering an aggressive advertising campaign strategy to differentiate its product from its competitors. The division does not expect volume to be affected, but it hopes to gain more control over pricing. If Division A has to spend $120,000 next year to advertise and its variable costs continue to be $1.75 per unit, what will its cost-plus price be? Do you think Division A will be able to sell its product at the cost-plus price? Why or Why Not?