【正文】 would give away profit. Note that if Elaine felt she needed to charge more than $, it is likely that none of her flowers would be sold. 19–2 Amin would be illadvised to charge $75 per hour. There are no doubt many accountants in town。 they average $65 per hour for a reason—clients will not pay much more than that amount. Accounting is a monopolistically petitive industry. There are many accountants, but they vary somewhat in age, experience, and preferred type of work (auditing, tax, management advisory services, inhouse bookkeeping for clients, etc.). As a result, the price will not vary greatly among the firms. Since Amin is new in town, he might adopt a peration pricing strategy. He is in the introduction stage of his ―service life cycle.‖ He needs to get some clients so that he can demonstrate his expertise and start some favorable ―word of mouth‖ advertising of his services. His college GPA will be irrelevant to potential clients。 they will be more interested in the type of job he can do. That can only be demonstrated by actually pleting some accounting jobs. Additionally, other accountants in town may be just as ―uptodate‖ if they engage in continuing education. One final caveat. Amin should not charge a price which is considerably less than the prevailing average because he does not want to indicate that his services are inferior to those provided by others. If he does accounting work for free, for example, he should be careful to choose work for a notforprofit agency (., the local United Way), or he should make additional work contingent on pricing closer to $65 per hour. 430 19–3 1. Markup percentage = $3,930,000/$19,650,000 = , or 20% 2. Bid = $980,000 + ()($980,000) = $1,176,000 Baker should remind the customer that the 20% markup on direct costs is not pure profit. It includes overhead as well. In this industry, 20% overhead plus profit is not out of line. 19–4 1. The markup percentage of 100% is typical for department stores. It must cover all costs of storing and selling the goods, including salaries of sales personnel。 rent or purchase of the building。 advertising。 hangers and racks for display。 supplies (tags, cleaning supplies, toilet paper for the restrooms)。 equipment (., cash registers)。 and so on. The profit earned is typically a small proportion of the markup percentage. 2. Like department stores, jewelry store markups include all costs of storing and selling the goods. In addition, because turnover is much lower in jewelry than in dry goods, the markup percentage must cover the working capital associated with the purchase of expensive inventory. 3. Johnson Construction Company’s overhead plus profit rate of 12% covers administrative costs。 hiring carpenters and locating subcontractors。 continuous inspection and quality control of the building。 payroll taxes on direct labor (., carpenters)。 depreciation and/or rent of office space, trucks, equipment。 and so on. 4. The direct labor rate charged includes overhead and profit on labor. (No doubt the materials price also includes some profit on the purchase and sale of materials.) The overhead embedded in the direct labor price includes payroll taxes for the mechanics, supplies (., rags, grease), small and large tools, garage space, utilities, and so on. 19–5 1. a. b. Absorption unit cost: Variable unit cost: Direct materials ............. $ Direct materials ............ $ Direct labor..................... Direct labor.................... Variable overhead ........ Variable overhead ....... Fixed overhead ............. Total.......................... $ 431 Total .......................... $ 432 19–5 Continued 2. Vaquero, Inc. AbsorptionCosting Ine Statement Sales (21,300 @ $35)....................................................... $ 745,500 Cost of goods sold (21,300 @ $) ....................... $ 479,250 Less: Overapplied overhead* ...................................... (7,000) 472,250 Gross margin ............................................................. $ 273,250 Less: Selling and administrative expense................ 186,900 Net ine ................................................................. $ 86,350 *The budgeted fixed overhead rate of $9 per direct labor hour was puted based on 12,000 direct labor hours. Therefore, budgeted fixed overhead must have been $108,000. Since actual fixed overhead was $12,000 less than budgeted, actual fixed overhead must be $96,000. Similarly, the variable overhead rate of $6 per direct labor hour implies budgeted variable overhead of $72,000 ($6 12,000 direct labor hours). Since actual variable overhead was $5,000 higher than budgeted overhead, actual variable overhead must be $77,000. Both variable and fixed overhead were applied on the basis of direct labor hours. Since 12,000 hours were worked, total applied overhead amounts to $180,000. Actual overhead was $173,000 (actual fixed of $96,000 plus actual variable of $77,000). Applied overhead ............................... $ 180,000 Actual overhead.................................. (173,000) Overapplied overhead................ $ 7,000 3. Vaquero, Inc. VariableCosting Ine Statement Sales (21,300 @ $35)....................................................... $ 745,500 Variable cost of goods sold (21,300 @ $18) ............. $ 383,400 Add: Overapplied variable overhead ......................... 5,000 (388,400) Variable selling expense (21,300 @ $3) ..................... (63,900) Contribution margin ............................................... $ 293,200 Less: Fixed factory overhead .......................................... $ 96,000 Selling and administrative expense ................... 123,000