Argosy Incorporated Uses Target Costing and Will Soon Enter a Very

question 40

Essay

Argosy Incorporated uses target costing and will soon enter a very competitive marketplace in which it will have limited influence over the prices that are charged. Management and consultants are working to fine-tune the company's sole service, which hopefully will generate a 12% return (profit) on the firm's $24,000,000 asset investment. The following information is available.
Hours of service to be provided: 34,000
Anticipated variable cost per service hour: $30
Anticipated fixed cost: $2,560,000 per year
Required:
A. How much profit must Argosy produce to achieve a 12% return?
B. Calculate the revenue per hour that Argosy must generate to achieve a 12% return.
C. Assume that prior to entering the marketplace, management conducted a planning exercise to determine whether a 14% return could be attained in Year No. 2. Can the company achieve this return if (a) competitive pressures dictate a maximum selling price of $195 per hour and (b) service hours, variable cost per service hour, and fixed costs are the same as the amounts anticipated in year no. 1? Show calculations.
D. If your answer to part "C" is "no," suggest and briefly describe a procedure that Argosy might use to achieve desired results.

Identify the appropriate costing system for different types of production environments.

Recognize prime costs and the significance of costing systems in cost management.

Understand the principles of lean manufacturing and its impact on reducing time, cost, and quality issues in production processes.

Interpret and utilize the cost of production reports for summarizing activity and managing operations in processing departments.

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Definitions:

Actively Managed Mutual Funds

Investment funds where fund managers actively make decisions about buying and selling stocks or bonds to beat the market.

Passive Indexes

Investment funds designed to mimic the composition and performance of a designated market index, thereby minimizing management decisions and costs.

ETFs

Exchange-Traded Funds, investment funds that are traded on stock exchanges, much like stocks, but hold assets such as stocks, commodities, or bonds.

Front-end Load

A fee paid when purchasing shares of a mutual fund or other investment, typically used to cover commission expenses.