Question

Question 3

Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $950 whereas the competition's comparable chair was selling for $795. Winters determined that a price drop to $795 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs.

Cost data based on sales of 10,000 chairs:

	Budgeted Quantity			Actual Quantity			Actual Cost
Direct materials (board feet)		90,000			81,500		$	1,260,000
Direct labor (hours)		72,350			74,775			877,000
Machine hours (hours)		12,400			12,250			252,000
Finishing and packing (hours)		7,500			7,400			127,000

If the profit per unit is maintained, the target cost per unit is:

Multiple Choice

• $7.

• $97.

• $107.

• $202.

• $152.

Consider the following data for three divisions of a company, X, Y, and Z:

Divisional:	X			Y			Z
Sales	$	1,303,000		$	871,000		$	5,094,000
Operating Income		185,600			98,700			323,300
Investment in assets		452,500			419,100			4,101,500

The return on investment (ROI) for Division X is:

Multiple Choice

• 7.9%.

• 11.3%.

• 23.6%.

• 29.9%.

• 41.0%.

Answer 1

Answer to 1

Budgeted sales(10,000×$950)	$9,500,000
Less: Direct materials ($1,260,000/81,500×90,000)	$1,391,411
Direct Labor ($877,000/74,775×72,350)	$848,558
Machine cost($252,000/12,250×12,400)	$255,086
Finishing and packing ($127,000/7,400×7,500)	$128,716
Profit	$6,876,229
Profit per unit ($6,876,229/10,000)	$688
Target price	$795
Target cost per unit ($795-$688)	$107

For this answer is Option 3 i.e $107

Answer to 2

Return on investment for division X is

Return on investment=Operating income/ Investment in assets

=$185,600/$452,50/

=41.0%

For this option is 5 i.e 40.1%

______×_____

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