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 53,500 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.

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 53,500 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. 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 $ 4,673,000 848,650 2,338,875 668,495 353,000 22,343,000 53,500 Required: 1. Determine the price for the part using a markup of 31% of full manufacturing cost. 2. Determine the price for the part using a markup of 24% of full life-cycle cost. 3. Determine the price for the part using a desired gross margin percentage to sales of 44%. 4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 23%. 5. Determine the price for the part using a desired before-tax return on investment of 13%. 6. Determine the total contribution margin and total operating profit for each of the methods in requirements 1 through 5. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Determine the price for the part using a markup of 31% of full manufacturing cost. (Do not round intermediate calculations. Round your answer to 4 decimal places.) Price per unit

Answer 1

Variable manufacturing Variable selling and administrative Total Variable Cost 4673000 848650 5521650 Plant-level fixed overhead Fixed selling and administrative Batch-level fixed overhead Total Fixed Cost 2338875 668495 353000 3360370 Total Variable Cost Total Fixed Cost (2338875+353000) Total Manufacturing Cost 4673000 2691875 7364875 Variable selling and administrative Fixed selling and administrative Total Selling and Adminstrative Expenses 848650 668495 1517145 Total Manufacturing Cost Total Selling and Adminstrative Expenses Total Life Cycle Cost 7364875 1517145 8882020

Total Manufacturing Cost Total Selling and Adminstrative Expenses Total Life Cycle Cost 7364875 1517145 8882020 Total Manufacturing Cost (A) Expected Units (B) Per Unit Manufacturing Cost (A/B) 7364875 53500 137.66 Total Life Cycle Cost (A) Expected Units (B) Per Unit Life Cycle Cost (A/B) 8882020 53500 166.02 Markup %s for product pricing: Desired Rate for Markup Cost (B) (A) 31% 137.66 Price (A* B)+B =(C) 180.3362 full manufacturing cost