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Subject: Cost Accounting

Course: ACTG 3P23

Williams Incorporated produces a single product, a part used in the manufacture of automobile transmissions. Known for its quality and performance, the part is sold to luxury auto manufacturers around the world. Because this is a quality product, Williams has some flexibility in pricing the part. The firm calculates the price using a variety of pricing methods and then chooses the final price based on that information and other strategic information. A summary of the key cost information follows. Williams expects to manufacture and sell 54,500 parts in the coming year. While the demand for Williams's part has been growing in the past 2 years, management is not only aware of the cyclical nature of the automobile industry, but also concerned about market share and profits during the industry's current downturn.

	Total Costs
Variable manufacturing	$ 4,671,000
Variable selling and administrative	846,650
Facility-level fixed overhead	2,336,875
Fixed selling and administrative	666,495
Batch-level fixed overhead	351,000
Total investment in product line	22,341,000
Expected sales (units)	54,500

Required:

1. Determine the price for the part using a markup of 43% of full manufacturing cost.

2. Determine the price for the part using a markup of 22% of full life-cycle cost.

3. Determine the price for the part using a desired gross margin percentage to sales of 42%.

4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 21%.

5. Determine the price for the part using a desired before-tax return on investment of 11%.

6. Determine the total contribution margin and total operating profit for each of the methods in requirements 1 through 5.Williams Incorporated produces a single product, a part used in the manufacture of automobile transmissions. Known for its quality and performance, the part is sold to luxury auto manufacturers around the world. Because this is a quality product, Williams has some flexibility in pricing the part. The firm calculates the price using a variety of pricing methods and then chooses the final price based on that information and other strategic information. A summary of the key cost information follows. Williams expects to manufacture and sell 54,500 parts in the coming year. While the demand for Williams's part has been growing in the past 2 years, management is not only aware of the cyclical nature of the automobile industry, but also concerned about market share and profits during the industry's current downturn.

	Total Costs
Variable manufacturing	$ 4,671,000
Variable selling and administrative	846,650
Facility-level fixed overhead	2,336,875
Fixed selling and administrative	666,495
Batch-level fixed overhead	351,000
Total investment in product line	22,341,000
Expected sales (units)	54,500

Required:

1. Determine the price for the part using a markup of 43% of full manufacturing cost.

2. Determine the price for the part using a markup of 22% of full life-cycle cost.

3. Determine the price for the part using a desired gross margin percentage to sales of 42%.

4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 21%.

5. Determine the price for the part using a desired before-tax return on investment of 11%.

6. Determine the total contribution margin and total operating profit for each of the methods in requirements 1 through 5.