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Exam 18: Pricing Decisions

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Question 61

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Hammen Corporation manufactures numerous products, one of which is called Omicron43. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Hammen decreases the price of Omicron43 to $16.20, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $18.00? (Your answer should be rounded to the nearest 0.1%.)

A) 11.8%
B) −20.0%
C) 29.0%
D) −13.3%

E) None of the above
F) B) and D)

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Question 62

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Ecob Corporation uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 19,000 units next year, the unit product cost of a particular product is $16.00. The company's selling and administrative expenses for this product are budgeted to be $250,800 in total for the year. The company has invested $440,000 in this product and expects a return on investment of 14%. The selling price based on the absorption costing approach for this product would be closest to:

A) $59.21
B) $29.20
C) $32.44
D) $18.24

E) B) and C)
F) A) and D)

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Question 63

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Ludy Mechanical Corporation has developed a new industrial grinder-model YS-48-that has been designed to outperform a competitor's best-selling industrial grinder. Model YS-48 has a useful life of 100,000 hours of service and its operating cost is $0.90 per hour. In contrast, the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $1.50 per hour. The competitor's industrial grinder sells for $169,000. Ludy has not yet established a selling price for model YS-48. From a value-based pricing standpoint what is the differentiation value offered by YS-48 relative to the competitor's offering for each 100,000 hours of service?

Generally speaking, managers should set higher prices when demand is elastic and lower prices when demand is inelastic.

Wermers Industries Inc. has developed a new drill press, model LS-88, that is designed to offer superior performance to a comparable drill press sold by Wermers's main competitor. The competing drill press sells for $31,000 and needs to be replaced after 1,000 hours of use. It also requires $6,000 of preventive maintenance during its useful life. ModelLS-88's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $7,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what range of possible prices should Wermers consider when setting a price for model LS-88?

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: What is the net operating income for product Tau42 at the current price?

Mercer Corporation estimates that an investment of $650,000 would be necessary to produce and sell 60,000 units of a new product each year. Other costs associated with the new product would be: The company requires a 25% return on the investment in all products. The company uses the absorption costing approach costing to pricing as described in the text. The selling price would be closest to:

Inscho Corporation manufactures numerous products, one of which is called Delta10. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Delta10 would Inscho need to sell at a price of $90.95 to earn the same net operating income that it currently earns at a price of $85.00? (Round your answer up to the nearest whole number.)

Pascal Corporation manufactures numerous products, one of which is called Gamma66. The company has provided the following data about this product: Management is considering decreasing the price of Gamma66 by 4%, from $51.00 to $48.96. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 100,000 units to 110,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Gamma66 earn at a price of $48.96 if this sales forecast is correct?

The management of Giammarino Corporation is considering introducing a new product--a compact barbecue. At a selling price of $78 per unit, management projects sales of 10,000 units. Launching the barbecue as a new product would require an investment of $100,000. The desired return on investment is 11%. The target cost per barbecue is closest to:

Blauvelt Electronics Corporation has developed a new instrument-model GZ-29-that has been designed to outperform a competitor's best-selling instrument. Model GZ-29 has a useful life of 30,000 hours of service and its operating cost is $3.20 per hour. In contrast, the competitor's product has a useful life of 10,000 hours of service and has operating costs that average $5.60 per hour. The competitor's instrument sells for $149,000. Blauvelt has not yet established a selling price for model GZ-29. From a value-based pricing standpoint what is the reference value that Blauvelt should consider when pricing model GZ-29?

Hill Corporation is contemplating the introduction of a new product. The company has gathered the following information concerning the product: The company uses the absorption costing approach to cost-plus pricing as described in the text. Required: a. Compute the markup on absorption cost. b. Compute the selling price. c. If the price computed in "b" above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain.

Cables Electronics Corporation has developed a new instrument-model XG-75-that has been designed to outperform a competitor's best-selling instrument. Model XG-75 has a useful life of 40,000 hours of service and its operating cost is $2.80 per hour. In contrast, the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $5.00 per hour. The competitor's instrument sells for $169,000. Cables has not yet established a selling price for model XG-75. From a value-based pricing standpoint what is the reference value that Cables should consider when pricing model XG-75?

The management of Rademacher Corporation is considering introducing a new product--a compact lawn blower. At a selling price of $24 per unit, management projects sales of 30,000 units. The lawn blower would require an investment of $200,000. The desired return on investment is 12%. The target cost per lawn blower is closest to:

Saulsberry Corporation manufactures numerous products, one of which is called Beta70. The company has provided the following data about this product: Required: a. What net operating income is the company earning now on its sales of Beta70? b. Management is considering increasing the price of Beta70 by 10%, from $60.00 to $66.00. The company's marketing managers estimate that this price hike would decrease unit sales by 15%, from 90,000 units to 76,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will Beta70 earn at a price of $66.00 if this sales forecast is correct? c. Assuming that the total traceable fixed expense does not change, how many units of Beta70 would Saulsberry need to sell at a price of $66.00 to earn the same net operating income that it currently earns at a price of $60.00? (Round your answer up to the nearest whole number.)

Powel Corporation manufactures numerous products, one of which is called Gamma54. The company has provided the following data about this product: Required: a. What net operating income is the company earning now on its sales of Gamma54? b. Management is considering increasing the price of Gamma54 by 10%, from $16.00 to $17.60. The company's marketing managers estimate that this price hike would decrease unit sales by 15%, from 180,000 units to 153,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will Gamma54 earn at a price of $17.60 if this sales forecast is correct? c. Assuming that the total traceable fixed expense does not change, if Powel increases the price of Gamma54 to $17.60, what percentage change in unit sales would provide the same net operating income that it currently earns at a price of $16.00? (Round your answer to the nearest one-tenth of a percent.)

Woodridge Corporation manufactures numerous products, one of which is called Alpha32. The company has provided the following data about this product: Management is considering increasing the price of Alpha32 by 4%, from $99.00 to $102.96. The company's marketing managers estimate that this price hike would decrease unit sales by 5%, from 90,000 units to 85,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha32 earn at a price of $102.96 if this sales forecast is correct?

Gama Avionics Corporation has developed a new high pressure pump-model SF-22-that has been designed to outperform a competitor's best-selling high pressure pump. The competitor's product has a useful life of 30,000 hours of service, has operating costs that average $1.70 per hour, and sells for $109,000. In contrast, model SF-22 has a useful life of 60,000 hours of service and its operating cost is $1.10 per hour. Gama has not yet established a selling price for model SF-22. Required: From a value-based pricing standpoint what is model SF-22's economic value to the customer over its 60,000 hour useful life?

Twisdale Corporation manufactures numerous products, one of which is called Omicron52. The company has provided the following data about this product: What is the net operating income for product Omicron52 at the current price?

Nance Corporation is about to introduce a new product. The following costs would be incurred if 40,000 units are produced and sold each year: Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the text. Assume that the company has not yet determined a markup to use on the new product. The new product would require an investment of $1,200,000. The company requires a 25% rate of return on investment in all new products. The markup under the absorption costing approach would be closest to: