Morrow Corporation Manufactures Part No Morrow Has Traditionally Used a 20% Markup on Total Cost

question 82

Essay

Morrow Corporation manufactures part no. 67, which is used in the production of mountain bikes. Per-unit information about part no. 67 follows. $\begin{array}{lr}\text { Prevailing market price } & \$ 33 \\\text { Direct materials } & 14 \\\text { Direct labor } & 6 \\\text { Manufacturing overhead } & 7 \\\text { Selling and administrative expenses } & 3\end{array}$
Morrow has traditionally used a 20% markup on total cost to arrive at a reasonable selling price. The company, though, has noticed a sizable drop in sales volume during the last few quarters, which it attributes to new entrants in the marketplace.
Required:
A. Compute the current selling price of part no. 67.
B. If management desired to meet the prevailing market price and maintain the current rate of profit on sales, what must happen to the company's total manufacturing costs? By how much?

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Definitions:

Markets for Goods

Platforms or venues where goods and services are exchanged between buyers and sellers, determining the prices through the laws of supply and demand.

Households

Units consisting of one or more people living in the same dwelling and sharing meals or living accommodation; they can also be considered as basic units in society for consumption, production, and decision-making.

Firms

Business organizations, such as corporations or partnerships, engaged in commercial, industrial, or professional activities.

Markets for Goods

Platforms or mediums where goods and services are exchanged between buyers and sellers.