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Night Watch Company recently recently began production of a new product,the halogen light,which required the investment of $500,000 in assets.The costs of producing and selling 12,000 halogen lights are estimated as follows:
Variable costs per unit: Fixed costs:
Direct materials $22 Factory overhead $120,000
Direct labor 12 Selling and administrative expenses 60,000
Factory overhead 6
Selling and administrative 4
Total $44
Night Watcch Company is currently considering establishing a selling price for the halogen light.The president of Night Watch Company has decided to use the cost-puls approach to product pricing and has indicated that the halogen light must earn a 12% rate of return on invested assets.
Instructions
1.Determine the amount of desired profit from the production and sale of the halogen light.
2.Assuming taht the total cost concept is used,determine (a)the cost amount per unit,(b)the markup percentage(roundedto two decimal places),and(c)the selling price of the halogen light (rounded to nearest whole dollar).
3.Assuming that the product coat concept is used,determine (a) the cost amount per unit, (b) the markup percentage,and(c) the selling price of the halogen light.
4.Assuming that the variable cost concept is used,determine (a)the cost amount per unit,(b)the market precentage(rounded to two decimal pleaces),and (c) the selling price of the halogen light(rounded to nearest whole dollar)
5.Comment on any additional comsiderations that could influence establishing the selling price for the halogen light.
6.Assume that as of septrmber 1,2010,7,000 units of halogen light have been produced and sold during the current year,Analysis of the domestic market indicates that 3,000.additional units of the halogen light are expected to be sold during the remainder of the year at the normal product price determinel under the total cost concept.On september 5,Night Watch Company receivd an offer from Forever Glow Inc.for 2,000 units,of the halogn light at $45 each.Forever Glow Inc. will market the units in Japan under its own brand name,and no selling and administrative expenses associated with the sale will be incurrred by Night Watch Company .The additional business is not expected to affect the domestic sales of the halogen light,and the additional.units could be produced to affect the domestic sales of the halogen light,and the additional units could be produced using existing capacity.
a. Prepare a diierential analysis report of the proposed sale to forever Glow Inc.
b. Based on the differential analysis report in part(a),should the proposal be accepted.
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