Question

Williams Inc. produces a single product, a part used in the manufacture of automobile transmissions. Known for its quality and performance, the part is sold to luxury auto manufacturers around the world. Because this is a quality product, Williams has some flexibility in pricing the part. The firm calculates the price using a variety of pricing methods and then choose the final price based on that information and other strategic information. A summary of the key cost information follows. Williams expects to manufacture and sell 58,500 parts in the coming year. While the demand for Williams's part has been growing in the past 2 years, management is not only aware of the cyclical nature of the automobile industry, but also concerned about market share and profits during the industry's current downturn Variable manufacturing Variable selling and administrative Facility level fixed overhead Fixed selling and administrative Batch-level fixed overhead Total investment in product line Expected sales (units) Total Costs $ 4, 663,098 838.550 2,328,875 658.495 343.000 22,333,000 58.500 Required: 1. Determine the price for the part using a markup of 39% of full manufacturing cost. 2. Determine the price for the part using a markup of 20% of full life-cycle cost 3. Determine the price for the part using a desired gross margin percentage to sales of 41% 4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 28% 5. Determine the price for the part using a desired before tax return on investment of 13% 6. Determine the total contribution margin and total operating profit for each of the methods in requirements through 5. Complete this question by entering your answers in the tabs below Desi g net for each of the things thgh (Hind your inte Contribution Margin Operat Pront Mark on a machung cost Price to achieved Roof

Answer 1

statement showing cost sheet of william inc( qty of production 58500)

Particulars (costs)	Unit price	Amount	Total cost
Variable Manufacturing (4663000/58500)	79.7094	4663000
Add facility level Fixed overhead (2328875/58500)	39.8098	2328875
Add Batch level fixed overhead (343000/58500)	5.8632	343000
Total Production Cost	125.3824		7334875
Add Variable selling and Administrative (838650/58500)	14.3358	838650
Add Fixed Selling and Administrative (658495/58500)	11.2563	658495
			1497145
Total manufacturing cost	150.9745		8832020

1) Price of product having mark up cost of 39% of Manufacturing cost

As given in cost sheet

Manufacturing cost = 8832020

mark up cost = 39% of 8832020

=3444487.8

Sales value = 12276507.8

price = 12276507.8 /58500

=209.8548

= $ 210 rounded off

2)20% markup of full life cycle cost

full life cycle cost means all recurring and one time non recurring cost which can be cost which are spend on production after production all are included

So cost of good sold + investment in project line (22333000)

=8832020 +22333000

=31165020

Full life cycle cost = 31165020

mark up cost = 20% of 31165020

=6233004

Sale price = 37398024

price = 37398024/58500

=639.2824

price = $ 639

3) Price of part using desired gross margin % to sales

This mean gross margin should be % of sales

Total manufacturing cost i.e cost of goods sold =8832020

sales = cost of goods sold + gross margin

sales = 8832020 + 41%of sales

using Unitary method

let cost = 100

so sales = 100+41 is gross margin

= 141

so 100=8832020(cost)

141 = ?

sales =141*8832020/100

=12453148.2

price = 12453148.2/58500

=212.87

= $ 213

4)life cycle cost= 31165020 ( from part b value taken)

using unitary menthos

100= life cycle cost

100+28 gross margin = sales

100+28% od sales gross margin

so 100=31165020

128 = ?

sales= 128*31165020/100

=39891225.6

price = 39891225.6/58500

= 681.90

$ 682

5) gross margin to be achieved of 13% of investment'

= 13%of 22333000

gross margin=2903290

Sales = cogs + gross margin desired

= 8832020 +2903290

=11735310

so price = 11735310/58500

=200.60

= $ 201

6) statement showing contribution gross margin and operating expenses

Particulars	Sales	Variable cost ( variable manufacturing +VAriable selling	Contribution margin( sales - variable cost)	Cogs sold	Operating Profit ( sales - cogs)
(1)all	12276507.8	5501650 (4663000+838650)	6774857.8	8832020	3444487.8
2	37398024	5501650 (4663000+838650)	31896374	8832020	28566004
3	12453148.2	5501650 (4663000+838650)	6951498.2	8832020	3621128.2
4	39891225.6	5501650 (4663000+838650)	34389575.6	8832020	31059205.6
5	11735310	5501650 (4663000+838650)	6233660	8832020	2903290

sales are taken from first five parts of answers

Cost of goods sold i,e manufacturing cost taken from cost sheet