Trevor Company Is Contemplating the Introduction of a New Product

question 41

Essay

Trevor Company is contemplating the introduction of a new product.The company has gathered the following information concerning the product:
$\begin{array}{|l|r|}\hline \text { Number of Units to Be produced and Sold Each Year } & 12,000 \\\hline \text { Investment Required by the Company } & \$ 200,000 \\\hline \text { Projected Unit Product Cost } & \$ 25 \\\hline \text { Projected Annual Selling, General, and Administrative Expenses } & \$ 90,000 \\\hline \text { Desired Rate of Return on Investment } & 15 \% \\\hline\end{array}$
The company uses the absorption costing approach to cost-plus pricing.
Required:
a)Compute the markup on absorption cost.
b)Compute the target selling price.
c)If the price computed in part b)above is charged,and costs turn out as projected,can the company be assured that no loss will be sustained on the new product? Explain.

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Definitions:

Population Means

The average value of a numerical characteristic in a population, representing the central tendency of the population.

Confidence Interval

A confidence interval is a range of values, derived from sample statistics, used to estimate the true value of a population parameter with a certain degree of confidence.

Normally Distributed

Describes a type of continuous probability distribution for a real-valued random variable where the data forms a symmetric, bell-shaped curve about the mean.

Variances Assumed

A condition in statistical analysis where it is presumed that the variances of two or more populations are equal, important in certain tests like ANOVA.