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Exam 30: Pricing Products and Services

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Question 21

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Allen Corporation's vice president in charge of marketing believes that every 8% increase in the selling price of one of the company's products would lead to an 11% decrease in the product's total unit sales. The product's absorption costing unit product cost is $10.70. The variable production cost is $1.50 per unit and the variable selling and administrative cost is $4.40 per unit. -The product's profit-maximizing price according to the formula in the text is closest to:

A) $12.96
B) $4.42
C) $17.37
D) $31.51

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

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Question 22

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Dieckman Company makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text. The pricing calculations are based on budgeted production and sales of 71,000 units per year. The company has invested $360,000 in this product and expects a return on investment of 13%. Direct labor is a variable cost in this company. -The markup on absorption cost is closest to:

A) 25.7%
B) 13.0%
C) 24.2%
D) 72.4%

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

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Question 23

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Coan Company recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below. The product's variable cost is $21.40 per unit. -The product's profit-maximizing price according to the formula in the text is closest to:

Guzzetta Corporation would like to use target costing for a new product that is under consideration.At a selling price of $70 per unit,management projects sales of 40,000 units.The new product would require an investment of $700,000.The desired return on investment is 17%. Required: Determine the target cost per unit for the new product.

Qudsi Company 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 36,000 units per year. The company has invested $580,000 in this product and expects a return on investment of 12%. Required: a.Compute the markup on absorption cost. b.Compute the selling price of the product using the absorption costing approach. c.Assume that every 10% increase in price leads to a 13% decrease in quantity sold.Assuming no change in cost structure and that direct labor is a variable cost,compute the profit-maximizing price.

The management of Store 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 6,000 units of the new product annually. The new product would require an investment of $1,140,000 and has a required return on investment of 10%. -The unit target selling price using the absorption costing approach is closest to:

The management of Store 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 6,000 units of the new product annually. The new product would require an investment of $1,140,000 and has a required return on investment of 10%. -The absorption costing unit product cost is:

The management of Kozloff Corporation is considering introducing a new product--a compact barbecue.At a selling price of $74 per unit,management projects sales of 80,000 units.Launching the barbecue as a new product would require an investment of $800,000.The desired return on investment is 14%.The target cost per barbecue is closest to:

The management of Mendoza,Inc. ,is considering a new product that would have a selling price of $98 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 10%. Required: Determine the target cost per unit for the new product.

The markup over cost under the absorption costing approach would increase if the unit product cost increases,holding everything else constant.

Penrod Company wants to manufacture and sell a new electric shaver.To compete effectively,the shaver would have to be priced at no more than $40 per unit.The following additional information is available: The target cost per shaver would be:

The following information is available on Bruder Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data,the total selling and administrative expenses each year are:

Mahboud,Inc. ,uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Based on budgeted sales of 64,000 units next year,the unit product cost of a particular product is $84.20.The company's selling and administrative expenses for this product are budgeted to be $1,292,800 in total for the year.The company has invested $560,000 in this product and expects a return on investment of 13%. The selling price for this product based on the absorption costing approach would be closest to:

Assume that the price elasticity of demand is less than -1 (for example,-1.5).As the absolute value of the price elasticity of demand increases,the profit-maximizing price decreases.

Perin Corporation would like to use target costing for a new product it is considering introduce.At a selling price of $25 per unit,management projects sales of 30,000 units.The new product would require an investment of $500,000.The desired return on investment is 11%.The target cost per unit is closest to:

Werry Company is about to introduce a new product. It is expected that the following costs would be incurred when 25,000 units are produced and sold in a year: Werry Company uses the absorption costing approach to cost-plus pricing as described in the text. -Assume that the company uses a markup of 90% in order to determine selling prices.The selling price under the absorption costing approach would be:

Cost-plus pricing is so named because all costs--production,selling,and administrative--are included in the cost base from which a target selling price is derived.

Madonia Corporation is introducing a new product whose direct materials cost is $37 per unit,direct labor cost is $19 per unit,variable manufacturing overhead is $6 per unit,and variable selling and administrative expense is $4 per unit.The annual fixed manufacturing overhead associated with the product is $91,000 and its annual fixed selling and administrative expense is $42,000.Management plans to produce and sell 7,000 units of the new product annually.The new product would require an investment of $595,000 and has a required return on investment of 20%.Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. Required: a.Determine the unit product cost for the new product. b.Determine the markup percentage on absorption cost for the new product. c.Determine the target selling price for the new product using the absorption costing approach.

Gasoline is a product whose demand is elastic.

Management of Fabiano Corporation is considering a new product,an outdoor speaker that would have a selling price of $43 per unit and projected sales of 20,000 units.Launching the new product would require an investment of $600,000.The desired return on investment is 14%. Required: Determine the target cost per unit for the outdoor speaker.