Question

Williams Inc. 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 51,500 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 current downturn Variable manufacturing Variable selling and administrative Facility-level fixed overhead Fixed selling and administrative Batch-level fixed overhead Total investment in product line Expected sales (units) Total Costs $ 4,677, ce 852,65e 2.342.875 672.495 357,000 22,347,00 51. See Required: 1. Determine the price for the part using a markup of 39% 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 37% 4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 204 5 Determine the price for the part using a desired before-tex return on investment of 12 6. Determine the total contribution margin and total operating profit for each of the methods in requrements through 5 redite-cycle return on each of one Complete this question by entering your answers in the tabs below. Recured 4 Recure Rewired Required Resuired 2 of full manufacturing content Determine the price for the part using markup of 39 Rohelvour 4 decinal place whit

Answer 1

Firstly we need to calculate manufacturing cost per unit and life cycle cost per unit which is shown as follows:-

Calculation of manufacturing cost for the part is shown as follows:- (Amounts in $)

Variable manufacturing cost	4,677,000
Facility level fixed overhead	2,342,875
Total manufacturing cost (A)	7,019,875
Total parts produced (B)	51,500 parts
Manufacturing cost per part (A/B)	136.30825 per part

Calculation of life cycle cost for the part is shown as follows:- (Amounts in $)

Total manufacturing cost	7,019,875
Variable selling and administrative cost	852,650
Fixed selling and administrative cost	672,495
Total Life Cycle Cost (C)	8,545,020
Total parts produced and sold (D)	51,500 parts
Manufacturing cost per part (C/D)	165.92272 per part

1) Price per part = Manufacturing cost per part*(1+39%)

= $136.30825*(1.39) = $189.4685 per part

Therefore price for the part using a markup of 39% of full manufacturing cost is $189.4685 per part.

2) Price per part = Life Cycle Cost per part*(1+22%)

= $165.92272*(1.22) = $202.4257 per part

Therefore price for the part using a markup of 22% of full life cycle cost is $202.4257 per part.

3) Gross margin percentage to sales is 37% (i.e. 37/100), therefore gross margin percentage to manufacturing cost is 37/63 [37/(100-37)]. For calculating price ratio to be multiplied by manufacturing cost is 100/63.

(or If gross margin is 37% of sales then manufacturing cost is 63% of sales)

Price per part = Manufacturing cost per part*100/63

= $136.30825*100/63 = $216.3623 per part

Therefore price for the part using a desired gross margin percentage to sales is $216.3623 per part.

4) If desired life cycle cost margin is 20% of sales then life cycle cost is 80% of sales)

Price per part = Life cycle cost per part*100/80

= $165.92272*100/80 = $207.4034 per part

Therefore price for the part using a desired life cycle cost margin percentage of 20% to sales is $207.4034 per part.