Argosy, Inc

question 24

Essay

Argosy, Inc. 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.

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Definitions:

Litigation Paralegal

A paralegal specializing in the process of taking legal action, including lawsuit preparation.

Attention To Detail

The careful consideration and focus on the small parts or aspects of a task or activity to ensure accuracy and completeness.

Appellate Court

A court that reviews the decisions of lower courts to determine if legal errors were made that could change the outcome of the case.

Remanded

When an appellate court sends a case back to a lower court for further proceedings or a new trial, usually with specific instructions.