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CMAII Assignment 3 Question 1 Fancy Company has a total capital...

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Accounting

CMAII Assignment 3
Question 1
Fancy Company has a total capital investment of $1,000,000 and requires a 8% target return on
investment. It has budgeted sales of 1,000 units of the only product with the following budgeted
costs:
Required:
a) Compute the selling price Fancy Company should charge to generate profits equal to the
required target return on investment.
b) Based on your answer in (a), compute the average markup percentage for setting prices as a
percentage of: Price -FC100%
(i) The full cost of the product
(ii) The variable cost of the product
(iii)Variable manufacturing costs
(iv)Total manufacturing costs
c) A competitor initiates a price war and cut the price of a similar product to $299. Fancy
Company reacts and wants to follow by cutting the price to $290. It is expected that sales will
increase by 5%. How much should it reduce the full cost per unit to keep the return on
investment unchanged?
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