Exam 15: Target Costing and Cost Analysis for Pricing Decisions

When introducing new products,some companies use price skimming whereas others use penetration pricing. Required: A.Distinguish between price skimming and penetration pricing. A.Price skimming is designed to obtain a high price per unit at relatively low levels of sales.As the product becomes known and interest in it grows,the price is lowered,thus stimulating sales volume.Penetration pricing,on the other hand,seeks to generate a relatively high level of sales initially in order to achieve a high market share.Such penetration is accomplished through an initial price that is relatively low. B.Is price skimming a viable alternative for most new products? Explain. B.Price skimming is probably not viable for most products.The skimming strategy requires a small core of customers for whom price is unimportant compared to other characteristics of the product-which might be the case with wealthy buyers and/or luxury goods.These customers are willing to pay just about any price to secure the product.

What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 40%?

In a typical business,the firm's overall demand would be influenced by interactions of pricing policies and:

What price will the company charge if the firm uses cost-plus pricing based on variable manufacturing cost and a markup percentage of 220%?

Which of the following terms describes a pricing strategy in which a new product's initial price is set relatively low in order to gain a large market share?

Melborne Corporation manufactures a single product that has a cost of $350.The company uses a 70% markup on cost to arrive at a selling price of $595,which results in a price that virtually always exceeds that of the market leaders.If Mohawk changes to the approach known as target costing,the company will first undertake a thorough study of competitors' prices.

The curve that shows the change in total revenue that accompanies a change in quantity sold is called the:

Which of the following is not a major influence on pricing decisions?

Neptune Pool Company is involved in a number of competitive bidding situations.The following costs are anticipated for a project to be bid for Trimex Manufacturing: Which of these costs would be treated differently if Neptune had either excess capacity or no excess capacity?

If a company has excess capacity,a sensible bidding strategy is to base the bid on the incremental costs incurred because the job will contribute toward the company's profit.

What price will the company charge if the firm uses cost-plus pricing based on absorption cost and a markup percentage of 120%?

If the target profit is $60,000 for a volume of 480 units,fixed costs are $168,000,and the variable cost per unit is $450,then the markup percentage on variable cost would be:

Under the time and material pricing method,a customer would be charged for:

Which of the following can influence a company's pricing decisions?

When determining the markup to be used in a cost-plus pricing formula,many companies base the markup on a target:

What is price skimming?

The following costs relate to Southern Company: Variable manufacturing cost,$30;variable selling and administrative cost,$8;applied fixed manufacturing overhead,$15;and allocated fixed selling and administrative cost,$4.If Southern uses total-cost pricing formulas,the company's markup percentage would be computed on the basis of:

In a cost-plus approach to pricing:

The following data pertain to Polar Company's commercial snow thrower: A.Variable manufacturing cost. B.Absorption manufacturing cost. C.Total cost. D.Total variable cost.

Mojave Corporation manufactures a single product that has a cost of $350.The company uses a 70% markup on cost to arrive at a selling price of $595,which results in a price that virtually always exceeds that of the market leaders.If Mojave changes to the approach known as target costing,the company will first: