Fitness Wat Pty Ltd manufactures and distributes fitness smart watches. The company has used an absorption...

 

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Fitness Wat Pty Ltd manufactures and distributes fitness smart watches. The company has used an absorption product costing system, which means that both variable and fixed overhead are included in the product cost. Cost estimates for a smart watch and predicted production volume for the coming year are as follows: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses Fixed manufacturing overhead Expected volume of production (units): Required: Per Unit Total $90 $45 $32 $33.8 $855,000 $1,035,000 18,500 Senior management expects to eam a rate of retum (ROI) of 28% on their invested assets of $5,625,000. a. The company currently uses the cost-plus pricing method. Compute the mark-up percentage and target selling price that will allow the company to earn its desired ROI of 28% for the coming year.[5 marks] b. Based on a recent marketing research, the senior management has an optimistic sales expectation of 20,000 units and predicts to earn a higher ROI of 31%. Compute new mark-up percentage and new target selling price that will allow the company to earn its new desired ROI.[5 marks] Click or tap here to enter text. c. Another cost-based approach to pricing is called time and material pricing. Under this approach, two pricing rates are set. Explain where this approach is used and identify the steps involved in time-and-material pricing. Also explain why this approach is used in some industries.[4 marks] Fitness Wat Pty Ltd manufactures and distributes fitness smart watches. The company has used an absorption product costing system, which means that both variable and fixed overhead are included in the product cost. Cost estimates for a smart watch and predicted production volume for the coming year are as follows: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses Fixed manufacturing overhead Expected volume of production (units): Required: Per Unit Total $90 $45 $32 $33.8 $855,000 $1,035,000 18,500 Senior management expects to eam a rate of retum (ROI) of 28% on their invested assets of $5,625,000. a. The company currently uses the cost-plus pricing method. Compute the mark-up percentage and target selling price that will allow the company to earn its desired ROI of 28% for the coming year.[5 marks] b. Based on a recent marketing research, the senior management has an optimistic sales expectation of 20,000 units and predicts to earn a higher ROI of 31%. Compute new mark-up percentage and new target selling price that will allow the company to earn its new desired ROI.[5 marks] Click or tap here to enter text. c. Another cost-based approach to pricing is called time and material pricing. Under this approach, two pricing rates are set. Explain where this approach is used and identify the steps involved in time-and-material pricing. Also explain why this approach is used in some industries.[4 marks]

Answer rating: 100% (QA)

a Compute the markup percentage and target selling price for the desired ROI of 28 To calculate the target selling price using the costplus pricing method we need to add the desired ROI to the total c... View the full answer