Question

Required information [The following information applies to the questions displayed below.) UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics: ICU 100 ICU 900 ww Design Specifications Video cameras Video monitors Motion detectors Floodlights Alarms Wiring Installation Cost Data $ 119/ea $ 35/ea $ 19/ea $ 5/ea $ 16/ea $ 0.3/ft. $ 12/hr 740 ft. 12 hr 1,140 ft. 30 hr The ICU 100 sells for $950 installed, and the ICU 900 sells for $1,660 installed. Required: 1. What are the current profit margin percentages on both systems? 2. UR Safe's management believes that it must drop the price on the ICU 100 to $890 and on the ICU 900 to $1,530 to remain competitive in the market. Recalculate profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current profit margin percentages. (For all requirements, round your percentage answers to 2 decimal places and other answers to the nearest whole dollar amount.) ICU 100 ICU 900 Current profit margin Profit margin Target cost

Answer 1

Answer :-

Required 1 :-

First we find the total cost of sales of two systems :-

Design Specifications	ICU 100	ICU 900	Cost Data	ICU 100 cost(ICU 100 × Cost data)	ICU 900 cost(ICU 900 × Cost data)
Video cameras	2	3	$119/ea	$238	$357
Video monitors	1	3	$ 35/ea	$35	$105
Motion detectors	1	4	$19/ea	$19	$76
Floodlights	3	5	$5/ea	$15	$25
Alarms	5	3	$16/ea	$80	$48
Wiring	740ft.	1,140ft.	$0.3/ft.	$222	$342
Installation	12hr	30hr	$12/hr	$144	$360
Total cost				$753	$1,313

Now we find the current profit margin % :-

Particular	ICU 100	ICU 900
Selling Price	$950	$1,660
Less :- Total cost	$753	$1,313
Profit margin	$197	$347
Current Profit Margin ​​​​​​[(Profits margin/Selling price) × 100]	$20.74%	20.90%

Required 2 :-

In required 2, there is decrease in selling price which effects the profit margin but the Total cost of sales remains sale.

Particular	ICU 100	ICU 900
New Selling Price	$890	$1,530
Less :- Total cost	$753	$1,313
Profit margin	$137	$217
Profit Margin ​​​​​​[(Profits margin/Selling price) × 100]	$15.39%	14.18%

Now we calculate the target cost :-

Particular	ICU 100	ICU 900
Selling Price	$890	$1,530
Current Profit Margin ​​​​​​	$20.74%	20.90%
Profit margin (Selling price × Current profit margin)	$184.59	$319.77
Target Cost	$705.41	$1,210.23