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Chelsea Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Main Man Robot. The analysis shows the following estimated monthly cost per 1,000 unit production run:

-Assume that, due to excess demand, Chelsea is able to raise the selling price on Main Man Robot 10%. To achieve a return of 30% of total revenues, Chelsea's monthly cost reduction in dollars will need to be:
A) $0 - the increased sales eliminate the need for cost reduction
B) $19,000
C) $25,000
D) $33,000

Question

Use the following to Ans questions :
Chelsea Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Main Man Robot. The analysis shows the following estimated monthly cost per 1,000 unit production run:
 
-Assume that, due to excess demand, Chelsea is able to raise the selling price on Main Man Robot 10%. To achieve a return of 30% of total revenues, Chelsea's monthly cost reduction in dollars will need to be:
A) $0 - the increased sales eliminate the need for cost reduction 
B) $19,000 
C) $25,000 
D) $33,000

Quizplus · Accepted Answer

To achieve a 30% return on total revenues with a 10% price increase, Chelsea must adjust costs. If the original revenue needed a 30% return, a 10% increase in price boosts revenue but doesn't eliminate the need for cost reduction to maintain or achieve the desired 30% return rate. The specific dollar amount (e.g., $19,000) would depend on the original revenue and cost figures, which are not provided, but the concept of needing a cost reduction remains valid.

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