Johnson Industries produces industrial computers for high-precision manufacturing. The following information is available:
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Per Unit
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Total
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Direct materials
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$25.00
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Direct labor
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$10.00
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Variable manufacturing overhead
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$6.00
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Fixed manufacturing overhead
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$36,000
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Variable selling and administrative costs
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$4.00
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Fixed selling and administrative costs
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$15,000
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The company has a desired ROI of 20%. It has invested assets of $420,000. It anticipates making and selling 3,000 units per year.
REQUIRED:
Part 1: Using the total (full) cost concept, determine the (a) unit cost amount; (b) markup percentage; and (c) unit target selling price.
Part 2: Using the product (absorption) cost concept, determine the (a) unit cost amount; and (b) markup percentage.
Part 3: Using the variable cost concept, determine the (a) unit cost amount; and (b) markup percentage.
Part 4: What is the target unit selling price under the three cost assumptions?
Part 5: What else should be considered when setting the product's selling price?
Part 6: Which of the three costing concepts would be most appropriate in each of the following situations?
- External reporting for GAAP
- Normal (long-run) pricing
- Evaluating special orders
Part 7: Johnson Industries received a special order for 500 computers at $50 each from a foreign customer. Acceptance of the order would increase variable selling costs by $1.70 per unit because of shipping costs, but would not increase fixed costs or interfere with any current orders. Prepare a differential analysis to determine whether the special order should be accepted or not.