Projected Cost Information for a New Product to Be Produced

question 5

Essay

Projected cost information for a new product to be produced by Kolier Manufacturing is as follows:
$\begin{array}{|l|l|}\hline \text { Expected variable unit costs: } & \\\hline \text { Direct materials } & \$ 10.90 \\\hline \text { Direct labor } & 7.18 \\\hline \text { Overhead } & 1.92 \\\hline \text { Selling costs } & 4.00 \\\hline\\\hline \text { Ammual fixed costs: } & \\\hline \text { T axes on property used } & \$ 8,870 \\\hline \text { Depreciation on building and equipment } & 18,920 \\\hline \text { Advertising } & 38,840 \\\hline \text { Other } & 2,070 \\\hline\end{array}$
The product is to be sold for $49.
a. Compute the number of units that must be sold to earn a profit of $80,000.
b. Compute the number of units that must be sold if advertising costs rise by $12,000 and a targeted profit of $120,000 is to be obtained.
c. Use the original information and sales of 10,000 units to compute the new selling price that the company must use to obtain a profit of $200,000.
d. The most in annual sales that could be projected is 20,000 units. Determine the added amount that could be spent on fixed advertising costs if the highest possible selling price that management believes can be charged is $50 and if there is a targeted profit of $225,000.

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Definitions:

Nearly Efficient Markets

Markets where prices reflect all available information to some degree but may not always be perfectly efficient.

Portfolio Managers

Investment management professionals who select and manage a mixture of investments in order to meet specified investment goals for the benefit of their clients.

Market

The arena in which buyers and sellers engage in the exchange of goods, services, or financial instruments.

Selection Bias

A distortion in statistical analysis resulting from the method of collecting samples, leading to an inaccurate representation of the population being studied.