SRB Corporation Manufactures and Sells Espresso Machines for $80 Each

question 88

Essay

SRB Corporation manufactures and sells espresso machines for $80 each. In a recent accounting period, SRB incurred the following costs to produce 5,000 espresso machines:
Direct material $ 18,250
Direct labour 36,250
Variable manufacturing overhead 22,250
Fixed manufacturing overhead 59,000
Variable nonmanufacturing costs 19,750
Fixed nonmanufacturing costs 41,000
Total $196,500
a)SRB's marketing research department has proposed developing a better quality espresso machine, which would sell for a price of $120. Top management will accept the proposal provided the profit margin is 40%. Calculate the target cost per unit for the new wine racks.
b)Recent market research has suggested SRB should sell the existing espresso machines for $60 each. Calculate the percentage decrease required for each cost category listed above, assuming a 40% profit margin and proportional cost reduction across categories.
c)Ignore the information in part (b). SRB anticipates demand for its current espresso machines will increase by 25% in the coming year. Assume that operations remain within the relevant range. Calculate the following amounts assuming SRB uses a 40% mark-up on total cost (including per-unit fixed costs)to determine product prices:
1)Total costs
2)Price per espresso machine
3)Total profit
d)Explain why each of the following is uncertain:
1)Expected customer demand for the espresso machines.
2)Ability to achieve the cost reduction identified in part (b).
a)SRB's marketing research department has proposed developing a better quality espresso machine, which would sell for a price of $120. Top management will accept the proposal provided the profit margin is 40%. Calculate the target cost per unit for the new wine racks.
b)Recent market research has suggested SRB should sell the existing espresso machines for $60 each. Calculate the percentage decrease required for each cost category listed above, assuming a 40% profit margin and proportional cost reduction across categories.
c)Ignore the information in part (b). SRB anticipates demand for its current espresso machines will increase by 25% in the coming year. Assume that operations remain within the relevant range. Calculate the following amounts assuming SRB uses a 40% mark-up on total cost (including per-unit fixed costs)to determine product prices:

---

Definitions:

R

A programming language and software environment used for statistical analysis, graphics representation, and reporting.

Correlation Matrix

A table showing the correlation coefficients between sets of variables to summarize their mutual relationships.

Pearson Correlations

A measure of the linear correlation between two variables, quantified by the Pearson correlation coefficient, ranging from -1 to 1.

Variables

Elements, features, or factors that are likely to vary or change among individuals or experiments.