inez company recently began production of a new product m which required the investm 647780

Inez Company recently began production of a new product, M, which required the investment of $1,600,000 in assets. The costs of producing and selling 80,000 units of Product M are estimated as follows:

Variable costs:

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Direct materials

$ 10.00 per unit

Direct labor

6.00

Factory overhead

4.00

Selling and administrative expenses

5.00

Total

$ 25.00 per unit

Fixed costs:

 

Factory overhead

$800,000

Selling and administrative expenses

400,000

Inez Company is currently considering establishing a selling price for Product M. The president of Inez Company has decided to use the cost plus approach to product pricing and has indicated that Product M must earn a 10% rate of return on invested assets.

Instructions

1. Determine the amount of desired profit from the production and sale of Product M.

2. Assuming that the total cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of Product M.

3. Assuming that the product cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of Product M.

4. Assuming that the variable cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of Product M.

5. Assume that for the current year, the selling price of Product M was $42 per unit. To date, 60,000 units have been produced and sold, and analysis of the domestic market indicates that 15,000 additional units are expected to be sold during the remainder of the year. Recently, Inez Company received an offer from Wong Inc. for 4,000 units of Product M at $28 each. Wong Inc. will market the units in Korea under its own brand name, and no selling and administrative expenses associated with the sale will be incurred by Inez Company. The additional business is not expected to affect the domestic sales of Product M, and the additional units could be produced during the current year, using existing capacity. (a) Prepare a differential analysis report of the proposed sale to Wong Inc. (b) Based upon the differential analysis report in part (a), should the proposal be accepted?

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