90.2K

Verified Solution

Link Copied!

Required:

Working as an internal accountant in City Sol Man prepare an informal memo to the Vice President of City Sol Man detailing any quantitative or qualitative analysis supporting or not supporting the current pricing strategy and the potential impact upon market entry from Saskatchewan companies.

City Sol Man manufactures and sells three fantastic products. Management has set the prices as marked up $15\%$ above cost. Product A requires three manual assembly operations, two machining steps, and no computer assembly steps; Product B requires five manual assembly operations, five machining steps, and ten computer assembly steps; while product C requires ten manual assembly operations, six machining steps, and six computer assembly steps. The projected costs and planned volumes are as follows:

Table $1$:

Product A Product B Product C

Material per unit $$6\mathrm{.}00$ $$12\mathrm{.}00$ $$18\mathrm{.}00$

Labour per unit $$10\mathrm{.}00$ $$6\mathrm{.}00$ $$4\mathrm{.}00$

Planned production $1,0005001,500$

The Manufacturing Overhead Costs are expected to be $$106,000.$ See details in Table $2$ below. Since the vice$-$president wants to know how much each product costs in order to set prices, the accountant decided that labour costs was the easiest indicator of capacity usage and as such it was decided to allocate the MOH based on labour costs.

Table $2$:

Manufacturing overhead costs

Manual Assembly operations $ $50,000$

Machining steps $ $15,000$

Computer Assembly steps $ $41,000$

Total MOH $$106,000$

Sales have been quite strong.

Now in evil Saskatchewan there were three separate companies preparing to start production and sale of the products that were similar and directly competitive to City Sol Man's. Each company specialized in one of the products. The following industry report provides the cost projections for

each of the separate companies $($See Table $3$ next page$)$:

Table $3$

Co$.$ Product A B Co$.$ Product B C Co$.$ Product C

Planned production $500250750$

Total materials costs $ $3,000$ $ $3,000$ $ $13,500$

Total labour costs $ $5,000$ $ $1,500$ $ $3,000$

Manufacturing overhead $ $20,000$ $ $21,000$ $ $13,000$

Per Unit data

Material per unit $ $6\mathrm{.}00$ $ $12\mathrm{.}00$ $ $18\mathrm{.}00$

Labour per unit $ $10\mathrm{.}00$ $ $6\mathrm{.}00$ $ $4\mathrm{.}00$

Manufacturing overhead $ $40\mathrm{.}00$ $ $92\mathrm{.}00$ $ $34\mathrm{.}67$

Total Cost $ $56\mathrm{.}00$ $ $110\mathrm{.}00$ $ $56\mathrm{.}67$

Selling Price $ $67\mathrm{.}20$ $ $132\mathrm{.}00$ $ $68\mathrm{.}00$

Profit $ $11\mathrm{.}20$ $ $22\mathrm{.}00$ $ $11\mathrm{.}33$

Answer & Explanation Solved by verified expert

See Answer