Exam 16: The Art and Science of Pricing to Optimize Revenue

Revco, Inc. is using the target costing for target pricing approach for its new product. If its expected annual sales for this product are 200,000 units, its total target cost is $170,000, and its ROI is 10% on $500,000 of invested assets, what is the expected selling price per unit?

Juanita Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $46 per unit. Juanita Company management has budgeted for operating income of $4 per unit at a volume of 10,000 units. Their current full cost per unit for the product is $43 per unit. What is the target cost of the Juanita Company's product?

Which of the following statements is not true regarding value engineering?

The "plus" in the cost-plus pricing method represents the

You are given the scenarios below. Select the appropriate effect based on the relationship between a product's cost, price, and profit. -Charging too little

Given below are business practices related to pricing situations, Match the descriptions with the appropriate pricing term -Charging a higher price for a product/service when there is limited availability of the product/service (demand is greater than supply)

Which of the following statements is correct regarding price, products, and competitors?

Which of the following is a characteristic of price makers?

Magnum Beverages sells bottles of premium champagne. It currently costs $40 per bottle to produce each bottle of champagne. Magnum has overhead costs of $1,800 per month, and expects to incur this amount each month. Magnum produced and sold 100 bottles of champagne last month and expects to continue this production and sales pattern for the rest of this current year. Its closest competitor currently sells its bottles of champagne at $65 per bottle. What is the lowest price that Magnum could sell each bottle of champagne for and to make a monthly operating profit?

MCG Manufacturing Company has a normal plant capacity of 27,000 units per month. Because of an excess quantity of inventory on hand, it expects to produce only 20,000 units in October. Monthly fixed costs and expenses are $108,000 ($4 per unit at normal plant capacity) and variable costs and expenses are $12.00 per unit. The present selling price is $28.00 per unit. Consider each of the following independent assumptions and prepare a differential analysis for each to determine if the special order should be accepted. a. The company has an opportunity to sell 7,000 additional units at $20.00 per unit to a business that plans to market the product under its own brand in a foreign market. Determine the incremental income or loss MCG Manufacturing could realize by accepting this special order. b. Now assume that the company has an opportunity to sell 7,000 additional units at $20.00 per unit to a business that plans to market the product under its own brand in a foreign market. Now, though, the special-order request includes customization which will add $3 of variable costs per unit. Determine the incremental income or loss MCG Manufacturing could realize by accepting this special order. c. Assume that the company has an opportunity to sell 6,000 additional units at $15.00 per unit to a business that plans to market the product under its own brand in a foreign market. Now, though, the special-order request includes additional shipping overseas which will add $4.50 of variable costs per unit. Determine the incremental income or loss MCG Manufacturing could realize by accepting this special order.

Stocks Cake Factory normally sells their specialty pound cake for $25. A special order to buy 100 pound cakes for $20 per pound cake was made by an organization hosting a charity event in Philadelphia. The variable cost per cake is $12 and the fixed cost per cake is $3. Assuming Stocks Cake Factory has sufficient excess capacity to fill the special order, determine the differential income or loss per cake from selling the pound cakes if Stocks were to accept this special order.

Time After Time, Inc. produces several models of clocks. Each clock consists of $10 of variable costs and $3 of fixed costs, and currently sells for $20. A foreign wholesaler offers to buy 5,000 clocks at $11 each, which Time After Time has the sufficient capacity to produce without affecting its current production and sales within the domestic market. Time after Time, however, would incur an additional $2 of shipping costs per clock to ship overseas. Instructions: a. Determine the incremental income or loss that Time After Time would realize by accepting this special order. b. What is the lowest acceptable special-order price that Time After Time would be willing to accept in order to accept the special order?

Canine Creations Company produces dog toys with a cost of $9 per unit ($6 variable and $3 fixed). This product normally sells to customers for $13 per unit. Chihuahua Inc., a foreign company, offers to purchase 3,000 units at $7 each. Canine Creations Company would incur $1.50 of special packaging and shipping costs if the order is accepted. Canine Creations Company has sufficient unused capacity to produce the 3,000 special-order units. If the special order is accepted, what will the effect be on the company's income?

Xavier Company sells a product in a competitive marketplace. Market analysis indicates that their product would probably sell at $50 per unit. Xavier Company management desires a 18% profit margin on sales. Their current full cost per unit for the product is $44 per unit. a. What is the desired profit per unit for Agway Company? b. What is the expected selling price for Agway Company using a target costing approach? c. What is the target cost per unit for Agway Company?

Magnum Beverages sells it premium champagne at $55 per bottle. It current costs $40 per bottle to produce each bottle of champagne. Magnum has overhead costs of $1,800 per month. If Magnum produced and sold 100 bottles of champagne last month, has the company adequately priced each bottle of champagne to make a positive monthly operating income?

When implementing pricing strategies, companies should focus on

The point at which the number of units supplied intersects with the number of units demanded is called the

Palm Furniture manufactures outdoor patio sets with the following unit selling price and unit costs at capacity of 5,000 units: A wholesale outlet has offered to purchase 200 outdoor patio sets but is not willing to pay the retail price of $1,300. What is the lowest price that Palm Furniture should accept if it is currently operating at only 80% capacity?

When the actual units sold are lower than what was used to set the original price, why should the unit selling price be increased?

Match the term with the appropriate definition. -Price takers