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

Darjeeling Co. produces a single product. Its normal selling price is $32.00 per unit. The variable costs are $21.00 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. The company has received a request for a special order that would not interfere with normal sales. The order is for 1,500 units and a special price of $19.00 per unit. Darjeeling Co. has the capacity to handle the special order and, for this order, a variable selling cost of $1.00 per unit would be eliminated. If the special order is accepted, what will the effect be on Darjeeling Co.'s income?

Pignatello Products has a new product coming to market next year. The following projections for production and sales are for the upcoming year at given below. Using a cost-plus pricing approach, what is the expected selling price per unit?

Tetrus Corporation uses a cost-plus pricing model based on full cost. The following cost information is available for the production and sale of 10,000 units of its sole product: Tetrus desires a profit equal to a 30% return on invested assets of $20,000. a. What is the total cost per unit per unit for the company's product? b. What is the ROI or desired profit per unit for the company's product? c. What is the markup percentage for this product? (round to 2 decimal places) d. What is the expected selling price for the company's product?

Diamond Corporation uses the total cost concept of product pricing. Cost information for the production and sale of 35,000 units of its single product is presented below. Diamond desires a profit equal to a 15% return on invested assets of $280,000. Instructions: Students should compute the following items for Diamond Corporation: a. Total cost per unit b. ROI (profit) per unit c. Markup percentage (round to 2 decimal places) d. Expected selling price per unit

Tri-Valley Corporation uses a cost-plus pricing model based on full cost. Below is cost information for the production and sale of 20,000 units of its sole product. a. What is the total cost per unit per unit for the company's product? b. If the company's markup percentage is 25%, what is the ROI or desired profit per unit? c. What is the expected selling price for the company's product? d. If Tri-Valley decides to increase its markup percentage to 30%, what is the new expected selling price for the company's product?

When using the cost-plus pricing method, if the actual units produced and sold differ from expected when the unit selling price was set, which per unit amount will remain the same?

Given below are business practices related to pricing situations, Match the descriptions with the appropriate pricing term -Taking advantage of consumers in need by charging them excessively high prices for necessities or basic items.

Gizmos and Gadgets, Inc. produces and sells a mechanical model car kit that challenges young children to create a motorized model car. The cost associated with the parts for the car kit include variable costs of $18 and fixed costs of $7. If the company expects to recognize a profit based on a markup of 40%, what is the expected selling price for each car kit?

What is a "price maker" and how are unit prices determined for a price maker.

Which of the following are found in competitive markets?

Sports Fanatics, Inc. is interested in selling Tampa Bay Buccaneers NFL logo key rings. Market research indicates that that 10,000 units can be sold if the price is no more than $8 per key ring, due to its Superbowl win last year. If Sports Fanatics, Inc. decides to produce the key rings, it will need to invest $200,000 in new production equipment. If Sports Fanatics, Inc. desires to earn a minimum rate of return of 15%, what is the target cost for each key ring?

Special orders are evaluated for acceptance

Timberland Boot Company has the following information concerning its work-boots: a. What is the total cost per pair of work boots? b. What is the ROI per pair of work boots? c. What is the markup percentage per pair of work boots? d. What is the selling price per pair of work boots assuming Timberland uses a cost-plus pricing model? e. If the current market price per pair of work boots is $70, what is the target cost for Timberland Boot Company?

Ixtapa Company. has determined the following per unit amounts: The unit selling price using the cost-plus method is

Explain the method of peak-load pricing, how does it differ from price discrimination, and provide an example of its use.

In the cost-plus method of pricing, a markup percentage is computed by dividing the per unit return on investment (ROI) by the

Which of the following would not affect the determination of the price of a product or service?

How is a special order different from a regular order for a product or service?

Price fixing happens when

Kiddie City is studying the costs of its most popular toy for the upcoming holiday season. It currently costs $50 to purchase from a supplier and sells for $75. The company is contemplating adding another toy which is very similar to the most popular one, but it will cost Kiddie City $65 from the supplier. The cost per toy is expected to decrease after the holiday season and will be more in line with the most popular toy at $50 in January. Regardless of which toy it sells, Kiddie City incurs variable selling and administrative costs of $5 per toy. a. What is the current markup percentage that Kiddie City is using for its most popular toy? b. If the company uses the same markup percentage for the new toy as it is using for the current popular toy, what is the expected selling price, markup in dollars and as a percentage? c. Assume that the operating assets attributable to the most popular toy product line amount to $50,000 and that the company's target ROI is 20%. Will Kiddie City meet the target ROI goal if it plans to sell 1,000 toys for this holiday season?