Sm09 - Chapter9 Answer Key PDF

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Chapter9 Answer Key...

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CHAPTER 9 Pricing ASSIGNMENT CLASSIFICATION TABLE Study Objectives

Self-Study Questions

Brief Do It! Exercises Review

Exercises

A&B Problems

1. Calculate a target cost when the market determines a product’s price.

2, 3

1

12

16, 17, 18

2. Calculate a target selling price using total cost-plus pricing.

1, 4, 5

2, 3, 4, 5

13

18, 19, 20, 21, 22, 31

34A, 35A, 36A, 37A, 51B, 52B, 53B

3. Calculate a target selling price using absorption cost-plus pricing.

9

10

31, 32, 33

46A, 47A, 48A, 63B, 64B

4. Calculate a target selling price using variable cost-plus pricing.

10

11

31, 32, 33

36A, 46A, 47A, 48A, 63B, 64B

5. Use time-and-material pricing to determine the cost of services provided.

6

6

14

23, 24, 25, 27

38A, 54B

6. Determine a transfer price using the negotiated, costbased, and market-based approaches.

7, 8

7, 8, 9

15

26, 28, 29, 30

39A, 40A, 41A, 42A, 43A, 44A, 45A, 48A, 49A, 50A, 55B, 56B, 57B, 58B, 59B, 60B, 61B, 62B, 65B, 66B

Solutions Manual © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 9-1

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Allotted Time (min.)

34A

Use cost-plus pricing to determine various amounts.

Moderate

15-25

35A

Use cost-plus pricing to determine various amounts.

Easy

10-20

36A

Moderate

15-25

37A

Use cost-plus pricing to determine various amounts. . Use cost-plus pricing to determine various amounts.

Easy

10-20

38A

Use time-and-material pricing to determine bill.

Easy

10-20

39A

Determine the minimum transfer price under different situations.

Moderate

20-30

Determine the minimum transfer price with no excess capacity and with excess capacity.

Moderate

30-40

Determine the minimum transfer price with no excess capacity.

Moderate

20-30

Determine the minimum transfer price under different situations.

Challenging

20-30

Determine the minimum transfer price under different situations.

Easy

15-25

Determine the minimum transfer price under different situations.

Moderate

20-30

45A

Determine the transfer price for goal congruence.

Moderate

20-30

46A

Calculate the target price using the absorption-cost and variable-cost approaches.

Easy

10-20

Calculate various amounts using the absorption-cost and variable-cost approaches.

Easy

30-40

Determine the minimum transfer price under different situations.

Moderate

20-30

Determine the minimum transfer price with no excess capacity.

Easy

10-20

Moderate

15-25

40A

41A

42A

43A

44A

47A

48A

49A

50A

Determine the minimum transfer price with excess capacity.

Solutions Manual © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 9-2

ASSIGNMENT CHARACTERISTICS TABLE (Continued) Problem Number

Description

Difficulty Level

Allotted Time (min.)

51B

Use cost-plus pricing to determine various amounts.

Easy

20-30

52B

Use cost-plus pricing to determine various amounts.

Challenging

20-30

53B

Use cost-plus pricing to determine various amounts.

Easy

15-25

54B

Use time-and-material pricing to determine bill.

Easy

10-20

55B

Determine the minimum transfer price with no excess capacity.

Easy

10-20

56B

Determine the minimum transfer price with excess capacity.

Easy

15-25

57B

Determine the minimum transfer price with no excess capacity and with excess capacity.

Moderate

20-30

Determine the minimum transfer price under different situations.

Moderate

20-30

Determine the minimum transfer price with no excess capacity.

Moderate

15-25

Determine the minimum transfer price under different situations.

Moderate

20-30

61B

Determine the transfer price under different situations.

Moderate

15-25

62B

Determine the transfer price for goal congruence.

Easy

30-40

63B

Calculate the target price using absorption-cost pricing and variable-cost pricing.

Easy

10-20

Calculate various amounts using absorption-cost pricing and variable-cost pricing.

Easy

20-30

Determine the minimum transfer price under different situations.

Moderate

20-30

Determine the minimum transfer price under different situations.

Moderate

20-30

58B

59B

60B

64B

65B

66B

Solutions Manual © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 9-3

© 2015  F  or I nst r u ct or Us e Onl y 94

Cor r el at i onChar tbet weenBl oom’ sTaxonomy,St udyObj ect i vesandEndof Chapt erExer ci sesandPr obl ems St udyObj ect i ve

Knowl edge Compr ehensi on

Appl i cat i on

Anal ysi s

* 1.Cal cul at eat ar getcostwhen t hemar ketdet er mi nesa pr oduct ’ spr i ce.

BE1,D12,E16,E17, E18

* 2.Cal cul at eat ar getsel l i ngpr i ce usi ngt ot alcost pl uspr i ci ng.

BE2,BE3,BE4,BE5, P34A,P36A,P52B D13,E18,D19,E20, E21,E22,E31,P35A, P37A,P51B,P53B

* 3.Cal cul at eat ar getsel l i ngpr i ce usi ngabsor pt i oncost pl us pr i ci ng. 4. Cal cul at eat ar getsel l i ngpr i ce usi ngvar i abl ecost pl uspr i ci ng.

BE10,E31,E32,E33, P46A,P47A,P64B P63B

5. Uset i meandmat er i alpr i ci ng t odet er mi net hecostof ser vi cespr ovi ded.

BE6,D14,E23,E24, E25,E27,P38A,P54B

6. Det er mi neat r ansf erpr i ceusi ng t henegot i at ed,cost based,and mar ket basedappr oaches.

BE7,BE8,BE9,D15, P39A,P40A,P41A, E26,E28,E29,E30, P42A,P43A,P44A, P45A,P62B P48A,P49A,P50A P55B,P56B,P57B, P58B,P59B,P60B, P61B,P65B,P66B

Synt hesi s

Eval uat i on

BE11,E31,E32,E33,P36A,P46A,P47A, P63B P64B

__________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i z edcopyi ng,di st r i but i on,ort r ansmi ss i onoft hi spagei spr ohi bi t ed   94

BLO OM’ S TAX ONO MY TAB LE

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 9-1 In order to obtain a profit of $15 per drive, Podrive must set its target cost at $30 per drive ($45 – $15). It will then need to form a design team that will design a product that will meet quality specifications without exceeding the target cost.

BRIEF EXERCISE 9-2 Direct materials......................................................................................... $12 Direct labour.............................................................................................. 8 Variable manufacturing overhead............................................................ 6 Fixed manufacturing overhead................................................................ 14 Variable selling and administrative expenses........................................ 4 Fixed selling and administrative expenses............................................. 12 Total unit cost.................................................................................... $56 Target selling price: $56 + (0.30 × $56) = $72.80 BRIEF EXERCISE 9-3 ROI per unit = (0.16 × $10,000,000) ÷ 50,000 units = $32.00 BRIEF EXERCISE 9-4 The mark-up percentage would be: __________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i zedcopyi ng,di st r i but i on,ort r ansmi ssi onoft hi spagei spr ohi bi t ed   95

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

$30 = 18.75% $36 + $24 + $18 + $40 + $14 + $28

__________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i zedcopyi ng,di st r i but i on,ort r ansmi ssi onoft hi spagei spr ohi bi t ed   96

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

BRIEF EXERCISE 9-5 The mark-up percentage is equal to desired ROI per unit divided by total unit cost. Desired ROI per unit = ($300,000 ÷ 10,000) = $30 Total unit cost = ($1,100,000 + $100,000) ÷ 10,000 = $120 The mark-up percentage = $30 ÷ $120 = 25% BRIEF EXERCISE 9-6 Swayze’s total bill would equal: (10.5 hours × $42) + $700 + ($700 × 40%) = $1,421 BRIEF EXERCISE 9-7 With a capacity of 2,000 units, the machining division would have to reduce its external sales by 200 units. The minimum transfer price on these units is equal to the division’s variable cost plus its opportunity cost—in this case the contribution margin on the units that could not be sold externally. The balance of the units could be sold for variable cost, as there is no opportunity cost. The minimum transfer price for the four hundred units would be a weighted average of both prices, as follows: Minimum transfer price = [($25 × 400) + (($80 – $30) × 200)] ÷ 400 = $50 OR [($25 x 200) + ($75 x 200)] ÷ 400 = $50 BRIEF EXERCISE 9-8 The company profits would increase by the difference between what the assembly division pays externally, and what they would pay the machining division: (400 units × $75) – (400 units × $50) = $10,000 __________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i zedcopyi ng,di st r i but i on,ort r ansmi ssi onoft hi spagei spr ohi bi t ed   97

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

BRIEF EXERCISE 9-9 The minimum transfer price is equal to the division’s variable cost plus its opportunity cost. In this case the minimum transfer price is: Minimum transfer price = [($24 × 400) + (($80 – $30) × 200)] ÷ 400 = $49

BRIEF EXERCISE 9-10 The markup percentage using the absorption-cost approach is calculated by including only manufacturing costs in the cost base. Therefore, all costs related to selling and administration are excluded from the cost base and must be covered by the markup. Markup percentage

=

$30 + ($14 + $28) $36 + $24 + $18 + $40

= 61.02%

BRIEF EXERCISE 9-11 The markup percentage using variable-cost pricing is calculated by including only variable costs in the cost base. Therefore, all fixed costs are excluded from the cost base and must be covered by the mark-up. Markup percentage

=

$30 + ($40 + $28) = 106.52% $36 + $24 + $18 + $14

__________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i zedcopyi ng,di st r i but i on,ort r ansmi ssi onoft hi spagei spr ohi bi t ed   98

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

SOLUTIONS TO DO IT! REVIEW DO IT! REVIEW 9-12 Expected market sales (1,000,000 × $3) Less: required ROI (0.18 × $2,000,000) Target cost for 1,000,000 units ÷ Target cost per unit

$3,000,000 360,000 2,640,000 1,000,000 $2.64

DO IT! REVIEW 9-13 Total per unit cost = $18 + $9 + $5 + $6 + $3 + $7 = $48 Target selling price = $48 + ($48 × 0.30) = $62.40 DO IT! REVIEW 9-14 Labour cost ($210,000 ÷ 5,000 hours) Desired profit margin Labour rate per hour

$42.00 18.00 $60.00

Billing: Labour (1.5 hrs × $60) Material costs Material handling ($80 × 50%) Total

$90.00 80.00 40.00 $210.00

DO IT! REVIEW 9-15 (a) Minimum transfer price = $3.00 – $0.25 = $2.75 (b) Minimum transfer price = $2.75 + ($8.00 – $3.00) = $7.75

__________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i zedcopyi ng,di st r i but i on,ort r ansmi ssi onoft hi spagei spr ohi bi t ed   99

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

SOLUTIONS TO EXERCISES EXERCISE 9-16 (a)

The target cost formula is: Target cost = Market price – Desired profit. In this case, the market price is $20 and the desired profit is $5.00 (25% × $20). Therefore the target cost is $15 ($20 – $5).

(b)

Target costing is particularly helpful when a company faces a competitive market. In this case, the price is affected by supply and demand, so no company in the industry can affect price. Therefore to earn a profit, companies must focus on controlling costs.

EXERCISE 9-17 Return on investment = Investment × ROI percentage = $8,000,000 × 20% = $1,600,000 Return on investment per unit is then $16.00 ($1,600,000 ÷ 100,000) The target cost = $90 – $16 = $74 EXERCISE 9-18 (a) (1) In this case the selling price would be $125 ($100 + [$100 × 25%]). The problem with the $125 is that it is unlikely that Mucky Duck will be able to sell any All-Body suits at that price. Market research seems to indicate that it will sell for only $110. (2) One way that Mucky Duck might consider manufacturing the AllBody swimsuit is if it has excess capacity and therefore manufacturing the All-Body will not affect fixed costs. Thus because the company can cover its variable costs it might want to sell at the $110 level. __________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i zedcopyi ng,di st r i but i on,ort r ansmi ssi onoft hi spagei spr ohi bi t ed   910

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

EXERCISE 9-18 (Continued) (3) The highest acceptable cost would be the target cost. The target cost is $88 as shown below: Target cost = Market price – Desired profit (1.00 x target cost) = $110 – (0.25 x target cost) = $88 Proof: Desired profit is $22 (25% x target cost) Market price is $88 + $22 = $110. (b) In this case the amount would be the selling price of $110. EXERCISE 9-19 (a) Total cost per unit: Per Unit $17 Direct materials........................................................................... 8 Direct labour................................................................................ 11 Variable manufacturing overhead............................................. Fixed manufacturing overhead 12 ($360,000 ÷ 30,000).................................................................. 4 Variable selling and administrative expenses.......................... Fixed selling and administrative expenses 5 ($150,000 ÷ 30,000).................................................................. $57 (b) Target selling price = $57 + (40% × $57) = $79.80

__________________________________________________________________________________________________________________________ Sol ut i onsManual ©2015JohnWi l ey&SonsCanada,Lt d.Unaut hor i zedcopyi ng,di st r i but i on,ort r ansmi ssi onoft hi spagei spr ohi bi t ed   911

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

EXERCISE 9-20 (a) Total cost per unit: Per Unit Direct materials........................................................................... $17.00 8.00 Direct labour................................................................................ 11.00 Variable manufacturing overhead............................................. Fixed manufacturing overhead 0.72 ($360,000 ÷ 500,000)................................................................ 4.00 Variable selling and administrative expenses.......................... Fixed selling and administrative expenses 0.30 ($150,000 ÷ 500,000)................................................................ $41.02 (b) Desired ROI per unit = (25% × $24,000,000) ÷ 500,000 = $12 (c) Markup percentage using total cost per unit: $12 ÷ $41.02 = 29.25% (d) Target selling price = $41.02 + ($41.02 × 29.25%) = $53.02 EXERCISE 9-21 (a)

Total cost per session: Direct materials Direct labour Variable overhead Fixed overhead ($950,000 ÷ 1,000) Variable selling & administrative expenses Fixed selling & administrative expenses ($500,000 ÷ 1,000) Total cost per session

Per Session $

20 400 50 950 40 500 $1,960

(b)

Desired ROI per session = (20% × $2,352,000) ÷ 1,000 = $470.40

(c)

Mark-up percentage on total cost per session = $470.40 ÷ $1,960 = 24%

(d)

Target price per session = $1,960 + ($1,960 × 24%) = $2,430.40

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Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition

Weygandt, Kimmel, Kieso, Aly

EXERCISE 9-22 (a) (b)

Fixed MOH per unit = $1,800,000 ÷ 3,000 = $600 per unit Fixed S & A expenses per unit = $324,000 ÷ 3,000 = $108 per unit Desired ROI per unit = (0.20 × $51,000,000) ÷ 3,000 = $3,400 per unit

(c) Direct materials........................................................................... Direct labour................................................................................ Variable manufacturing overhead............................................. Fixed manufacturing overhead.................................................. Var...