1. 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 56,500 parts in the coming year. While the demand for Williamss 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 industrys current downturn.

	Total Costs
Variable manufacturing	$	4,667,000
Variable selling and administrative		842,650
Facility-level fixed overhead		2,332,875
Fixed selling and administrative		662,495
Batch-level fixed overhead		347,000
Total investment in product line		22,337,000
Expected sales (units)		56,500

Required:

a. Determine the price for the part using a markup of 35% of full manufacturing cost.

b. Determine the price for the part using a markup of 24% of full life-cycle cost.

c. Determine the price for the part using a desired gross margin percentage to sales of 45%.

d. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 29%.

e. Determine the price for the part using a desired before-tax return on investment of 12%.

f. Determine the total contribution margin and total operating profit for each of the methods in requirements 1 through 5.

2. UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics:

Design Specifications	ICU 100			ICU 900			Cost Data
Video cameras		1			4		$	112	/ea
Video monitors		2			3		$	24	/ea
Motion detectors		3			1		$	16	/ea
Floodlights		4			2		$	8	/ea
Alarms		5			6		$	13	/ea
Wiring		630	ft.		1,030	ft.	$	0.3	/ft.
Installation		11	hr		11	hr	$	12	/hr

The ICU 100 sells for $880 installed, and the ICU 900 sells for $1,590 installed.

Required:

1. What are the current profit margin percentages on both systems?

2. UR Safes management believes that it must drop the price on the ICU 100 to $820 and on the ICU 900 to $1,460 to remain competitive in the market. Recalculate profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current profit margin percentages.