Essay
Kiddie City is studying the costs of its most popular toy for the upcoming holiday season. It currently costs $50 to purchase from a supplier and sells for $75. The company is contemplating adding another toy which is very similar to the most popular one, but it will cost Kiddie City $65 from the supplier. The cost per toy is expected to decrease after the holiday season and will be more in line with the most popular toy at $50 in January. Regardless of which toy it sells, Kiddie City incurs variable selling and administrative costs of $5 per toy.
a. What is the current markup percentage that Kiddie City is using for its most popular toy?
b. If the company uses the same markup percentage for the new toy as it is using for the current popular toy, what is the expected selling price, markup in dollars and as a percentage?
c. Assume that the operating assets attributable to the most popular toy product line amount to $50,000 and that the company's target ROI is 20%. Will Kiddie City meet the target ROI goal if it plans to sell 1,000 toys for this holiday season?
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a. $50%; Current markup percentage = (Un...View Answer
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