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Exam 17: Pricing Products and Services

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Question 21

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Mahan, 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 60,000 units next year, the unit product cost of a particular product is $56.20. The company's selling and administrative expenses for this product are budgeted to be $1,302,000 in total for the year. The company has invested $320,000 in this product and expects a return on investment of 8%. The selling price for this product based on the absorption costing approach would be closest to:

A) $108.57
B) $77.90
C) $78.33
D) $60.70

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

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Question 22

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Lagace 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 20,000 units next year, the unit product cost of a particular product is $81.60. The company's selling and administrative expenses for this product are budgeted to be $354,000 in total for the year. The company has invested $260,000 in this product and expects a return on investment of 13%. The markup on absorption cost for this product would be closest to:

A) 34.7%
B) 23.8%
C) 13.0%
D) 21.7%

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

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Question 23

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Quare 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 35,000 units per year. The company has invested $100,000 in this product and expects a return on investment of 11%. 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 14% decrease in quantity sold. Assuming no change in cost structure and that direct labor is a variable cost, compute the profit-maximizing price.

The following information is available on Browning 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:

A new product, an automated crepe maker, is being introduced at Boorman Corporation. At a selling price of $72 per unit, management projects sales of 20,000 units. Launching the crepe maker as a new product would require an investment of $700,000. The desired return on investment is 14%. The target cost per crepe maker is closest to:

Okino Company's management believes that every 8% increase in the selling price of one of the company's products would lead to a 17% decrease in the product's total unit sales. The variable cost per unit of this product is $44.60. Required: a. Compute the product's price elasticity of demand as defined in the text. b. Compute the product's profit-maximizing price according to the formula in the text.

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

Hostetter Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $30 per unit, management projects sales of 30,000 units. The new product would require an investment of $200,000. The desired return on investment is 13%. The target cost per unit is closest to:

Demand for a product is said to be elastic if a change in price has a substantial effect on the number of units sold.

Cost data relating to the single product produced by the Jones Company are given below: The Jones Company uses the absorption costing approach to cost-plus pricing described in the text with a desired markup of 60%. If the company plans to produce and sell 20,000 units each year, the selling price per unit would be:

Roal Corporation manufactures 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 37,000 units per year. The company has invested $220,000 in this product and expects a return on investment of 9%. Required: a. Compute the markup on absorption cost. b. Compute the selling price of the product using the absorption costing approach.

Nichnols Corporation's marketing manager believes that every 6% decrease in the selling price of one of the company's products would lead to a 18% increase in the product's total unit sales. The product's absorption costing unit product cost is $10.10. The variable production cost is $1.70 per unit and the variable selling and administrative cost is $1.60. Required: a. Compute the product's price elasticity of demand as defined in the text. b. Compute the product's profit-maximizing price according to the formula in the text.

Diehl 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 52,000 units per year. The company has invested $420,000 in this product and expects a return on investment of 8%. Direct labor is a variable cost in this company. -The selling price based on the absorption costing approach is closest to:

Coble 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 $15.70 per unit. -The product's price elasticity of demand as defined in the text is closest to:

Pasternack Corporation 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 $23.10 per unit. Required: a. Compute the product's price elasticity of demand as defined in the text. b. Compute the product's profit-maximizing price according to the formula in the text.

If a product is price inelastic, then a small change in selling price will result in a substantial change in the volume of units sold.

The management of Matsuura 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 1,000 units of the new product annually. The new product would require an investment of $254,000 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 Jahns Corporation is considering introducing a new product-a compact barbecue. At a selling price of $59 per unit, management projects sales of 30,000 units. Launching the barbecue as a new product would require an investment of $500,000. The desired return on investment is 19%. The target cost per barbecue is closest to:

The optimal selling price for a product depends

Kirby, Inc., manufactures 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 19,000 units per year. The company has invested $580,000 in this product and expects a return on investment of 14%. The selling price based on the absorption costing approach would be closest to: