Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:
Direct materials $5.00 per unit
Direct labor $2.90 per unit
Indirect production costs $6.42 per unit
Non-manufacturing costs $3.20 per unit
Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product:
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The company's objective is to earn 5% profit on the sales price of the product. Clark carried out a value engineering study and decided that they could make the processing activity more efficient and save costs. If they reduce the total processing activity cost down to $210,000, what will their profit percentage be? (Please round to the nearest tenth of a percent.)
A) 4.8%
B) 4.9%
C) 5.9%
D) 5.2%

Question

Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:
Direct materials $5.00 per unit
Direct labor $2.90 per unit
Indirect production costs $6.42 per unit
Non-manufacturing costs $3.20 per unit
Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product: 
-
The company's objective is to earn 5% profit on the sales price of the product. Clark carried out a value engineering study and decided that they could make the processing activity more efficient and save costs. If they reduce the total processing activity cost down to $210,000, what will their profit percentage be? (Please round to the nearest tenth of a percent.)
A) 4.8% 
B) 4.9% 
C) 5.9% 
D) 5.2%

Quizplus · Accepted Answer

D) Calculations:
$210,000/60,000 = $3.50
$3.50 × 900 = $3,150
($2,500 + $3,150 + $320)/1,000 = $5.97
$5.00 + $2.90 + $5.97 + $3.20 = $17.07
$18.00 - $17.07 = $0.93
$0.93/$18.00 = 5.2 %

Clark Manufacturing Makes Blank CDs; It Is a Very Competitive