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Cost accounting

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Please help with the attached problems.

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The editor of Spunk Magazine is considering three alternative prices for her new monthly
periodical. Her estimate of price and quantity demanded are:
Price Demanded
$6.95 20,000
$5.95 25,000
$4.95 32,000

Monthly costs of producing and delivering the magazine include $80,000 of fixed costs

PowerDrive, Inc. produces a hard disk drive that sells for $140 per unit.
The cost of producing 20,000 drives in the prior year was:

Direct material $500,000
Direct labor 300,000
Variable overhead 100,000
Fixed overhead 1,200,000
Total cost $2,100,000

At the start of the current year, the company received an order for 2,000 drives from a
computer company in China. Management of PowerDrive has mixed feelings about
the order. On the one hand they welcome the order because they currently have excess
capacity. Also, this is the company's first international order. On the other hand, the
company in China is only willing to pay $100 per unit.
World View is considering production of a lighted world globe that the company would
price at a markup of 20 percent above full cost. Management estimates that the variable
cost of the globe will be $50 per unit and fixed costs per year will be $100,000.

a. Assuming sales of 1,000 units, what is the full cost of a globe and what is the price
with a 20 percent markup?
b. Assume that the quantity demanded at the price calculated in part a is only 500
units. What is the full cost of the globe and what is the price with a 20 percent
markup? .
The product design team at New Time Products is in the process of designing a new
clock using target costing. Product features in comparison to competing products
suggest a price of $27 per unit. The company requires a profit of 25 percent of selling price.

a. What is the target cost per clock?
b. Suppose it appears that the clocks cannot be manufactured for the target cost.
For the coming year, Triumph Corporation has told Julius Company that it will be
switched to an activity-based pricing system or it will be dropped as a customer. In addition
to regular prices, Julius will be required to pay:
Order processing (per order) .
Additional handling costs if order marked rush (per order)
Technical support calls (per call)

a. Calculate the profitability of the Julius Company account if activity is the same as
in the prior year.
On a recent job for Orvieto Industries, the company set its price as follows:

Product costs inciuding podiums, seating, lighting, etc. $140,000
Installer salaries 20,000
Total 160,000
Markup at 30 percent 48,000
Bid price $208,000

The job turned out to be a big hassle. Orvieto requested 20 change orders, although
the dollar value of the products they requested changed very little. The company also
returned 25 items that had extremely minor flaws (scratches that were barely visible
and would be expected in normal shipping). Orvieto also requested six meetings with
designers taking 30 hours before its plan was finalized. Normally, only two or three
meetings are necessary.
Nancy Jackson, controller for Lauden, decided to conduct a customer profitability
analysis to determine the profitability of Orvieto. She grouped support costs into three


Solution Summary

The solution explains some questions relating to cost accounting