Zones is setting a target price on its new printer. Cost data for the printer writer at a budgeted volume of 3,000 units are as follows.

Per Unit Total

Direct Materials $300

DL 140

VMO 60

Fixed MO $250,000

Variable sell & admin 40

Fixed selling & admin 120,000

Zones uses cost-plus pricing to provide a 40% ROI on its printer line. A total of $800,000 in assets has been committed to the production of the printers.

Instructions:

(a) Calculate the mark up % under the absorption-cost approach that will allow Zones to realize its desired ROI of 40%. Show your calculations to support your answer.

(b) Calculate the target price of the printer under absorption-cost pricing and show proof that the desired ROI is realized. Show your calculations to support your answer

(c) Calculate the mark up % under the variable-cost approach that will allow Zones to realize a desired ROI of 60%. Show your calculations to support your answer

(d) Calculate the target price of the oven under variable-cost pricing and show proof that the desired ROI is being realized. Show your calculations or support your answer.

(e) Since both absorption-cost pricing & variable-cost pricing produce the same target price and provide the same ROI, why do both methods exist? Isn't one method clearly better than the other? Hint: provide the benefits of each pricing alternative.

Please note a revision on question (e) . You are required to calculate the variable costing alternativeusing and ROI of 60% for (c) and (d) . However, if you used the ROI of 40% for both (c) and (d), the target price would be similar.

Note the change in question (e)

Since both absorption-cost pricing and variable-cost pricing produce similar target prices if the same ROI was used, why do both methods exist? Isn't one method clearly better than the other? Hint: provide the benefits of each pricing alternative. (5 marks, 10 available)