Exam 13: Target Costing and Cost Analysis for Pricing Decisions

The Gluten Free Company, which manufactures gluten free snack foods, is ready to introduce a new line of breakfast bars. The following data is available: Variable manufacturing cost \ 240 Variable selling and administrative cost 20 Applied fixed manufacturing cost 80 Allocated fixed selling and administrative cost 65 What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 60%?

Dexter Incorporated, which manufactures various lines of computer equipment, is planning to introduce a new line of laptops. Current plans call for the production and sale of 1,000 units, with estimated costs as follows: Variable costs: Manufacturing \ 450,000 Selling and administrative 100,000 Total variable costs \ 550,000 Fixed costs: Manufacturing \ 300,000 Selling and administrative 180,000 Total fixed costs 480,000 Total costs \ 1.030,000 The average amount of capital invested in the laptop product line is $900,000 and Dexter's target return on investment is 18%. What price must Dexter charge if the company uses cost-plus pricing based on total cost?

Shea Shorts Inc. (SSI) manufactures electrical wiring, which is used in the production of air conditioners and small electronics. Per-metre information is as follows. Prevailing market price \ 33 Direct materials 14 Direct labour 6 Manufacturing overhead 7 Selling and administrative expenses 3 SSI has traditionally used a 20% markup on total cost to arrive at a reasonable selling price. The company, though, has noticed a sizable drop in sales volume during the last few quarters, which it attributes to new entrants in the marketplace. Required: A. Compute the current selling price per metre. B. If management desired to meet the prevailing market price and maintain the current rate of profit on sales, what must happen to the company's total manufacturing costs? By how much?

Kendrick Corporation sells a single product. The following information relates to the year just ended: Number of units sold: 20,000 Variable cost per unit: $300 Total fixed cost: $3,000,000 Operating income: $4,200,000 Required: A. Compute the company's selling price. B. Compute the percentage markup on total cost. Round your answer to two decimal places. C. Assume that Kendrick desired to change its practice of computing a markup on total cost to a markup on variable cost. If the Company wants to hold selling price constant, would the markup percentage increase or decrease? By how much?

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

Heathrow employs cost-plus pricing formulas to derive selling prices for its various products. If the formulas are all used correctly, which of the following cost bases will result in the highest selling price?

Which of the following formulas represents the markup percentage on total cost?

The curve that shows the relationship between the sales price and quantity sold is called the:

Jester Corporation, which has a maximum labour capacity of 30,000 hours per month, has considerable flexibility with its customers when it comes to project completion dates. Management is considering the submission of a bid for a job to be performed for the city of Cambridge, Ontario. Costs for the job are as follows: Raw materials \ 140.000 Labour costs 330.000 Variable overhead 2\% of labour 66.000 Fixed overhead (45\% of labour) 148.500 Allocated administrative cost 48.000 Total cost \ 732.500 Jester's labour force is paid an average of $22 per hour and if the company wins the bid, it will have three months to complete the work. Management adds a 30% profit margin to all jobs, computed on the basis of total variable cost. Required: A. Compute the lowest total cost that the company would use when figuring its bid, assuming that Jester has excess capacity. B. Compute Jester's bid if the company has no excess capacity. C. Assume that Jester is currently working at 85% of capacity. Does the firm have sufficient time to complete the job? If not, what could the company do if it desires to do business with the city of Cambridge?

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?

If a company has excess capacity, which of the following is a sensible bidding strategy?

The following costs relate to JB Contraction Company: Variable manufacturing cost, $20; variable selling and administrative cost, $11; applied fixed manufacturing overhead, $12; and allocated fixed selling and administrative cost, $3. If JB uses absorption manufacturing-cost pricing formulas, the company's markup percentage would be computed on the basis of:

Patterson and Clay Companies both use cost-plus pricing formulas and arrived at a selling price of $1,000 for the same product. Patterson uses absorption manufacturing cost as the basis for computing its dollar markup whereas Clay uses total cost. Which of the following choices correctly denotes the company that would have (1) the higher cost basis for deriving its dollar markup and (2) the higher markup percentage respectively?

Jensen Marine Supplies Inc. uses time and material pricing. The Mechanics Department, which anticipates 20,000 direct labour hours of activity, has the following data: Annual overhead costs: Material handling and storage \ 20,000 Other overhead costs 60,000 Annual cost of materials used 200,000 Labour rate per hour, including fringe benefits 20 Hourly charge to achieve profit margin 15 If a particular job takes 20 hours of labour and $800 of materials, the price charged for the job is:

Quality Exteriors installs stucco on high-priced custom homes, using the time-and-materials method to price jobs for individual builders. Quality anticipates using $250,000 of materials during the year and will incur $15,000 for material handling and storage. Other overhead costs, which are driven by the company's 18,000 direct labour hours, will total $360,000. Quality pays construction crews $17 per labour hour and adds a markup of $19 per hour on its time charges. There is no profit markup on material cost. During the first quarter of the year, Quality performed 24 jobs for Don Henderson Builders, using 3,100 labour hours and $72,000 of materials. Required: Calculate the amount that Quality would bill Don Henderson Builders for work performed.

Which of the following choices correctly denotes the collective factors that can influence a company's pricing practices for goods and services?

If the volume sold reacts strongly to changes in price, demand:

Jensen Marine Supplies Inc. uses time and material pricing. The Mechanics Department, which anticipates 20,000 direct labour hours of activity, has the following data: Annual overhead costs: Material handling and storage \ 20,000 Other overhead costs 60,000 Annual cost of materials used 200,000 Labour rate per hour, including fringe benefits 20 Hourly charge to achieve profit margin 15 The time charge per hour is:

The following data pertain to Purcell Incorporated's Product No. 7: Variable manufacturing cost \5 00 Variable selling and admmistrative cost 80 Applied fixed manufacturing cost 100 Allocated fixed selling and administrative cost 30 Required: For each of the following cost bases, determine the appropriate percentage markup that will result in a price of $800 for the Product No.7. (Round percentages to nearest one-hundredth of a percent.) A. Variable manufacturing cost. B. Absorption manufacturing cost. C. Total cost. D. Total variable cost.

Jensen Marine Supplies Inc. uses time and material pricing. The Mechanics Department, which anticipates 20,000 direct labour hours of activity, has the following data: Annual overhead costs: Material handling and storage \ 20,000 Other overhead costs 60,000 Annual cost of materials used 200,000 Labour rate per hour, including fringe benefits 20 Hourly charge to achieve profit margin 15 The amount to be added to each dollar of material cost to obtain the total material charge is: