Exam 28: Pricing Decisions

Morice Industries Inc. has developed a new injection mold, model IA-05, that is designed to offer superior performance to a comparable injection mold sold by Morice's main competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive maintenance during its useful life. -From a value-based pricing standpoint what is model IA-05's economic value to the customer over its 2,000 hour life?

Bochenski Mechanical Corporation has developed a new industrial grinder-model UF-48-that has been designed to outperform a competitor's best-selling industrial grinder.Model UF-48 has a useful life of 80,000 hours of service and its operating cost is $1.00 per hour.In contrast,the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $1.80 per hour.The competitor's industrial grinder sells for $129,000.Bochenski has not yet established a selling price for model UF-48. Required: From a value-based pricing standpoint what is the differentiation value offered by model UF-48 relative to the competitor's offering for each 80,000 hours of service?

Which of the following items are included in the cost base under the absorption approach to cost-plus pricing?

Mounger Industrial Products Inc.has developed a new industrial forklift,model CZ-03,that is designed to offer superior performance to a comparable forklift sold by Mounger's main competitor.The competing forklift sells for $27,000 and needs to be replaced after 1,000 hours of use.It also requires $3,000 of preventive maintenance during its useful life.Model CZ-03's performance capabilities are similar to the competing forklift with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $6,000 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint what is the differentiation value offered by model CZ-03 relative to the competitor's forklift for each 4,000 hours of usage?

The absorption costing approach to cost-plus pricing will result in attaining the company's required rate of return only if forecasted unit sales are realized.

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

All other things equal including costs,if customers are more sensitive to price for one product than another,then to maximize profit the first product should have a higher price.

Management of Thebeau,Inc.,is considering a new product that would have a selling price of $72 per unit and projected sales of 40,000 units.The new product would require an investment of $600,000.The desired return on investment is 19%. Required: Determine the target cost per unit for the new product.

Algood Corporation manufactures numerous products,one of which is called Omicron09.The company has provided the following data about this product: Required: a.What net operating income is the company earning now on its sales of Omicron09? b.Management is considering decreasing the price of Omicron09 by 5%,from $19.00 to $18.05.The company's marketing managers estimate that this price reduction would increase unit sales by 15%,from 100,000 units to 115,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will Omicron09 earn at a price of $18.05 if this sales forecast is correct? c.Assuming that the total traceable fixed expense does not change,how many units of Omicron09 would Algood need to sell at a price of $18.05 to earn the same net operating income that it currently earns at a price of $19.00? (Round your answer up to the nearest whole number.)

Woodridge Corporation manufactures numerous products,one of which is called Alpha32.The company has provided the following data about this product: Management is considering increasing the price of Alpha32 by 4%,from $99.00 to $102.96.The company's marketing managers estimate that this price hike would decrease unit sales by 5%,from 90,000 units to 85,500 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Alpha32 earn at a price of $102.96 if this sales forecast is correct?

Ladle 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 63,000 units next year,the unit product cost of a particular product is $39.00.The company's selling and administrative expenses for this product are budgeted to be $1,020,600 in total for the year.The company has invested $560,000 in this product and expects a return on investment of 11%. The markup on absorption cost for this product would be closest to:

Quamma Corporation 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 23,000 units per year. The company has invested $280,000 in this product and expects a return on investment of 8%. Required: a.Compute the markup on absorption cost. b.Compute the selling price of the product using the absorption costing approach.

In the absorption approach to cost-plus pricing,the anticipated markup in dollars is equal to the anticipated profit.

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: -From a value-based pricing standpoint what range of possible prices should Blauvelt consider when setting a price for GZ-29?

Shoun Mechanical Corporation has developed a new industrial grinder-model QJ-47-that has been designed to outperform a competitor's best-selling industrial grinder. Model QJ-47 has a useful life of 120,000 hours of service and its operating cost is $0.60 per hour. In contrast, the competitor's product has a useful life of 30,000 hours of service and has operating costs that average $0.90 per hour. The competitor's industrial grinder sells for $129,000. Shoun has not yet established a selling price for model QJ-47. -From a value-based pricing standpoint what range of possible prices should Shoun consider when setting a price for QJ-47?

Weakly Industrial Products Inc.has developed a new industrial instrument,model CT-60,that is designed to offer superior performance to a comparable instrument sold by Weakly's main competitor.The competing instrument sells for $22,000 and needs to be replaced after 1,000 hours of use.It also requires $4,000 of preventive maintenance during its useful life.Model CT-60's performance capabilities are similar to the competing instrument with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $6,000 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: a.What is the reference value that Weakly should consider when pricing model CT-60? b.What is the differentiation value offered by model CT-60 relative to the competitor's instrument for each 2,000 hours of usage? c.What is model CT-60's economic value to the customer over its 2,000 hour life? d.What range of possible prices should Weakly consider when setting a price for model CT-60?

The management of Musselman 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 9,000 units of the new product annually. The new product would require an investment of $1,305,000 and has a required return on investment of 10%. -The unit target selling price using the absorption costing approach is closest to:

Willow Corporation manufactures and sells 20,000 units of Product Z each year.In order to produce and sell this many units,it has been necessary for the company to make an investment of $500,000 in Product Z.The company requires a 20% rate of return on all investments in products.Selling and administrative expenses associated with Product Z total $200,000 per year.The unit product cost of Product Z is $20.The company uses the absorption costing approach to cost-plus pricing described in the text.The selling price for Product Z is:

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: -Management is considering decreasing the price of Tau42 by 6%,from $64.00 to $60.16.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 60,000 units to 66,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Tau42 earn at a price of $60.16 if this sales forecast is correct?

Wenner Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $44 per unit, management projects sales of 10,000 units. The new product would require an investment of $900,000. The desired return on investment is 10%. -The target cost per lawn blower is closest to: