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Exam 28: Pricing Decisions

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Question 21

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Quamma Corporation makes a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing as described in the text.The pricing calculations are based on budgeted production and sales of 23,000 units per year. The company has invested $280,000 in this product and expects a return on investment of 8%. Required: a.Compute the markup on absorption cost. b.Compute the selling price of the product using the absorption costing approach.

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a.
Selling and administrative expenses...

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Question 22

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The absorption costing approach to cost-plus pricing will result in attaining the company's required rate of return only if forecasted unit sales are realized.

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B) False

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Question 23

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The management of Musselman Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. The company's accounting department has supplied the following estimates for the new product: Management plans to produce and sell 9,000 units of the new product annually. The new product would require an investment of $1,305,000 and has a required return on investment of 10%. -The unit target selling price using the absorption costing approach is closest to:

Management of Thebeau,Inc.,is considering a new product that would have a selling price of $72 per unit and projected sales of 40,000 units.The new product would require an investment of $600,000.The desired return on investment is 19%. Required: Determine the target cost per unit for the new product.

Demand for a product is said to be elastic if a change in price has:

Shoun Mechanical Corporation has developed a new industrial grinder-model QJ-47-that has been designed to outperform a competitor's best-selling industrial grinder. Model QJ-47 has a useful life of 120,000 hours of service and its operating cost is $0.60 per hour. In contrast, the competitor's product has a useful life of 30,000 hours of service and has operating costs that average $0.90 per hour. The competitor's industrial grinder sells for $129,000. Shoun has not yet established a selling price for model QJ-47. -From a value-based pricing standpoint what range of possible prices should Shoun consider when setting a price for QJ-47?

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: -Management is considering decreasing the price of Tau42 by 6%,from $64.00 to $60.16.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 60,000 units to 66,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Tau42 earn at a price of $60.16 if this sales forecast is correct?

Willow Corporation manufactures and sells 20,000 units of Product Z each year.In order to produce and sell this many units,it has been necessary for the company to make an investment of $500,000 in Product Z.The company requires a 20% rate of return on all investments in products.Selling and administrative expenses associated with Product Z total $200,000 per year.The unit product cost of Product Z is $20.The company uses the absorption costing approach to cost-plus pricing described in the text.The selling price for Product Z is:

All other things equal including costs,if customers are more sensitive to price for one product than another,then to maximize profit the first product should have a higher price.

Mounger Industrial Products Inc.has developed a new industrial forklift,model CZ-03,that is designed to offer superior performance to a comparable forklift sold by Mounger's main competitor.The competing forklift sells for $27,000 and needs to be replaced after 1,000 hours of use.It also requires $3,000 of preventive maintenance during its useful life.Model CZ-03's performance capabilities are similar to the competing forklift with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $6,000 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint what is the differentiation value offered by model CZ-03 relative to the competitor's forklift for each 4,000 hours of usage?

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?

Algood Corporation manufactures numerous products,one of which is called Omicron09.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 Omicron09? b.Management is considering decreasing the price of Omicron09 by 5%,from $19.00 to $18.05.The company's marketing managers estimate that this price reduction would increase unit sales by 15%,from 100,000 units to 115,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will Omicron09 earn at a price of $18.05 if this sales forecast is correct? c.Assuming that the total traceable fixed expense does not change,how many units of Omicron09 would Algood need to sell at a price of $18.05 to earn the same net operating income that it currently earns at a price of $19.00? (Round your answer up to the nearest whole number.)

In the absorption approach to cost-plus pricing,the anticipated markup in dollars is equal to the anticipated profit.

Bochenski Mechanical Corporation has developed a new industrial grinder-model UF-48-that has been designed to outperform a competitor's best-selling industrial grinder.Model UF-48 has a useful life of 80,000 hours of service and its operating cost is $1.00 per hour.In contrast,the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $1.80 per hour.The competitor's industrial grinder sells for $129,000.Bochenski has not yet established a selling price for model UF-48. Required: From a value-based pricing standpoint what is the differentiation value offered by model UF-48 relative to the competitor's offering for each 80,000 hours of service?

Which of the following items are included in the cost base under the absorption approach to cost-plus pricing?

Weakly Industrial Products Inc.has developed a new industrial instrument,model CT-60,that is designed to offer superior performance to a comparable instrument sold by Weakly's main competitor.The competing instrument sells for $22,000 and needs to be replaced after 1,000 hours of use.It also requires $4,000 of preventive maintenance during its useful life.Model CT-60's performance capabilities are similar to the competing instrument with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $6,000 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: a.What is the reference value that Weakly should consider when pricing model CT-60? b.What is the differentiation value offered by model CT-60 relative to the competitor's instrument for each 2,000 hours of usage? c.What is model CT-60's economic value to the customer over its 2,000 hour life? d.What range of possible prices should Weakly consider when setting a price for model CT-60?

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: -From a value-based pricing standpoint what range of possible prices should Blauvelt consider when setting a price for GZ-29?

Morice Industries Inc. has developed a new injection mold, model IA-05, that is designed to offer superior performance to a comparable injection mold sold by Morice's main competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05'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 $8,000 of preventive maintenance during its useful life. -From a value-based pricing standpoint what is model IA-05's economic value to the customer over its 2,000 hour life?

Ladle Corporation uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Based on budgeted sales of 63,000 units next year,the unit product cost of a particular product is $39.00.The company's selling and administrative expenses for this product are budgeted to be $1,020,600 in total for the year.The company has invested $560,000 in this product and expects a return on investment of 11%. The markup on absorption cost for this product would be closest to:

Wenner Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $44 per unit, management projects sales of 10,000 units. The new product would require an investment of $900,000. The desired return on investment is 10%. -The target cost per lawn blower is closest to: