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?

Question

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?

Quizplus · Accepted Answer

The Answer of 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?

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