Question

RunAway is a local company that​ custom-prints tech running shirts for organized racing events. The company has been in business for 2 years. Normal demand for the tech running shirts is approximately 650 shirts per event. On​ average, there are two events per month. The company has the following direct costs per​ shirt: Direct material (tech shirts) $3.30 Direct labor (printing) $0.50 Direct labor (design) $2.70 Total direct costs $6.50. The company has historically estimated selling price based on the direct cost of providing the tech shirts. Prices reflected a 40% desired profit margin above direct costs.​ Recently, RunAway has experienced​ lower-than-normal profits and suspects that the prices it is charging are not covering all costs​ (direct and​ indirect) of providing the tech shirts. Indirect costs of the company include depreciation on the printing machines and utilities. The following data from the most recent year relate to these indirect​ costs: Depreciation Tech Shirts Utilities Jan $500 650 1990 Feb $500 780 1870 March $500 980 1890 April $500 1450 2640 May $500 1210 2340 June $500 1400 3390 July $500 1580 3480 Aug $500 1610 3560 Sept $500 1320 2780 Oct $500 1220 2750 Nov $500 860 2280 Dec $500 790 2150 The management accountant estimates the following regression equation with utilities as the dependent variable and the number of tech shirts as the independent​ variable: y ​= $689 ​+ $1.65X 1. If monthly sales are 1,300 tech​ shirts, what is the full cost per tech​ shirt?​ 2. Why has RunAway been experiencing​ lower-than-normal profits? ​(Round any interim currency calculations to the nearest cent and enter the profit margin percentage to the nearest whole​ percent, X%.) Runaway has only been earning​ a(n) -- ​% profit margin on each tech shirt sold. Profits are lower than normal because RunAway has not been aware of how the -- (choice option: design, direct, indirect,material, printing) costs have been affecting overall profits. The decision to base prices on 40% markup of direct costs has been -- (effective or ineffective) in recovering all costs plus desired profits related to providing the tech shirts. 3. What price must RunAway charge to recover all costs and earn a 20% margin on all​ sales? ​(Round to the nearest​ cent.) RunAway must charge $--- to earn a 20% margin on all sales. D. What implications will a potential price increase have on RunAway ​and/or its​ customers? How might the owners address any negative reactions from​ customers? If RunAway increases its​ price, they --- (choice option may lose, will gain, will not lose customers). The owners of RunAway --- ((a)need not worry about communicating the reason for the increase to its customers, b) will need to carefully approach current sutomers and explain that current price increase was necessary to cover all costs.)

Answer 1

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