Reference no: EM132562669

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 chooses 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 55,000 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.

                                                                 Total Costs

Variable manufacturing                      $4,670,000

Variable selling and administrative              845,650

Facility-level fixed overhead                       2,335,875

Fixed selling and administrative                      665,495

Batch-level fixed overhead                            350,000

Total investment in product line                    22,340,000

Expected sales (units)                                    55,000

Required:

Question 1. Determine the price for the part using a markup of 41% of full manufacturing cost.

Question 2. Determine the price for the part using a markup of 21% of full life-cycle cost.

Question 3. Determine the price for the part using a desired gross margin percentage to sales of 41%.

Question 4. Determine the price for the part using a desired life-cycle cost margin percentage to sales of 26%.

Question 5. Determine the price for the part using a desired before-tax return on investment of 15%.

Question 6. Determine the total contribution margin and total operating profit for each of the methods in requirements 1 through 5.