What is division A’s target full product cost

Dan Dixon, Majority stockholder and president of Dixon, INC., is working with his top managers on future plans for the company. As the company’s managerial accountant, you’ve been asked to analyze the following situations and make recommendations to the management team.

Requirements.

1. Division A of Dixon, Inc. has $4,750,000 in assets. Its yearly fixed costs are $550,500, and the variable costs of its product line are $1.40 per unit. The division’s volume is currently 510,000 units. Competitors offer a similar product, at the same quality, to retailers for $3.75 each. Dixons management team wants to earn a 14% return on investment on the division’s assets.
2. What is division A’s target full product cost?
3. Given the division’s current costs, will Division A be able to achieve its target profit?
4. Assume division A has identified ways to cut its variable cost to $1.25 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the division to achieve its target profit?
5. Division A is considering an aggressive advertising campaign strategy to differentiate its product from its competitors. The division does not expect volume to be affected, but it hopes to gain more control over pricing. If Division A has to spend $145,000 next year to advertise and its variable cost continue to be $1.25 per unit, what will its cost-plus price be? Do you think Division A will be able to sell its product at the cost-plus price? Why or why not?