Question

2. Cost-plus, target pricing, working backward A-Plus Shed, Inc., manufactures and sells a do-it-yourself storage shed kit. In 2012, it reported the following: Units produced and sold 4,000 Investment $ 2,300,000 Markup percentage on full cost 5 % Rate of return on investment 20 % Variable cost per unit $ 500 1. What was A−Plus Shed's operating income in 2012? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost? 2. A−Plus Shed is considering increasing the annual spending on advertising by $110,000. The managers believe that the investment will translate into a 15% increase in unit sales. Should the company make the investment? Show your calculations. 3. Refer back to the original data. In 2013, A−Plus Shed believes that it will only be able to sell 3,500 units at the price calculated in requirement 1. Management has identified $100,000 in fixed cost that can be eliminated. If A−Plus Shed wants to maintain an 5% markup on full cost, what is the target variable cost per unit?

Answer 1

1. A-Plus shed's operating income in 2012 = $460,000

1i Full cost per unit = $2,300

1ii Selling price = $2,415

1iii Mark up percentage on variable cost = $23%

2. Yes, the company should make the investment. This is because by expending $110,000 on advertising, it will increase the operating income by $1,039,000 .

3. Target variable cost per unit = $2,028.57

Step-by-step explanation:

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