Exam 28: Pricing Decisions

The management of Landstrom 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 6,000 units of the new product annually.The new product would require an investment of $1,036,200 and has a required return on investment of 10%. Required: a.Determine the unit product cost for the new product. b.Determine the markup percentage on absorption cost for the new product. c.Determine the selling price for the new product using the absorption costing approach.

The selling price based on the absorption costing approach is closest to:

Cables Electronics Corporation has developed a new instrument-model XG-75-that has been designed to outperform a competitor's best-selling instrument.Model XG-75 has a useful life of 40,000 hours of service and its operating cost is $2.80 per hour.In contrast,the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $5.00 per hour.The competitor's instrument sells for $169,000.Cables has not yet established a selling price for model XG-75. From a value-based pricing standpoint what is the reference value that Cables should consider when pricing model XG-75?

Kirgan,Inc.,manufactures a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 57,000 units per year. The company has invested $140,000 in this product and expects a return on investment of 13%. The selling price based on the absorption costing approach would be closest to:

Contento Corporation manufactures numerous products,one of which is called Kappa15.The company has provided the following data about this product: What is the net operating income for product Kappa15 at the current price?

Aboud Industrial Products Inc.has developed a new industrial high pressure pump,model ON-28,that is designed to offer superior performance to a comparable high pressure pump sold by Aboud's main competitor.The competing high pressure pump sells for $87,000 and needs to be replaced after 1,000 hours of use.It also requires $15,000 of preventive maintenance during its useful life.Model ON-28's performance capabilities are similar to the competing high pressure pump with two important exceptions-it needs to be replaced only after 3,000 hours of use and it requires $31,000 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint what range of possible prices should Aboud consider when setting a price for model ON-28?

Management of Niemczyk Corporation is considering a new product,an outdoor speaker that would have a selling price of $31 per unit and projected sales of 10,000 units.Launching the new product would require an investment of $700,000.The desired return on investment is 16%. Required: Determine the target cost per unit for the outdoor speaker.

Twisdale Corporation manufactures numerous products, one of which is called Omicron52. The company has provided the following data about this product: -Management is considering decreasing the price of Omicron52 by 4%,from $42.00 to $40.32.The company's marketing managers estimate that this price reduction would increase unit sales by 5%,from 160,000 units to 168,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Omicron52 earn at a price of $40.32 if this sales forecast is correct?

Tavis Robotics Corporation has developed a new robot-model FI-73-that has been designed to outperform a competitor's best-selling robot. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $4.60 per hour, and sells for $109,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating cost is $2.60 per hour. Tavis has not yet established a selling price for model FI-73. -From a value-based pricing standpoint what is the differentiation value offered byFI-73 relative to the competitor's offering for each 30,000 hours of service?

Attal Corporation manufactures numerous products,one of which is called Epsilon05.The company has provided the following data about this product: Assume that the total traceable fixed expense does not change.If Attal increases the price of Epsilon05 to $75.60,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $72.00? (Your answer should be rounded to the nearest 0.1%.)

The sensitivity of unit sales to changes in price is called the price elasticity of demand.

Spach Corporation manufactures numerous products, one of which is called Beta68. The company has provided the following data about this product: -Assume that the total traceable fixed expense does not change.How many units of product Beta68 would Spach need to sell at a price of $15.20 to earn the same net operating income that it currently earns at a price of $16.00? (Round your answer up to the nearest whole number.)

The following information is available on Bruder Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data,the total selling and administrative expenses each year are:

Target costing involves adding a target profit per unit to actual unit cost to determine the selling price.

Whittenton Corporation manufactures numerous products,one of which is called Tau14.The company has provided the following data about this product: What is the net operating income for product Tau14 at the current price?

Yashinski Corporation manufactures numerous products,one of which is called Alpha46.The company has provided the following data about this product: Required: a.Management is considering increasing the price of Alpha46 by 15%,from $45.00 to $51.75.The company's marketing managers estimate that this price hike would decrease unit sales by 25%,from 110,000 units to 82,500 units.Assuming that the total traceable fixed expense does not change,what net operating income will Alpha46 earn at a price of $51.75 if this sales forecast is correct? b.Assuming that the total traceable fixed expense does not change,how many units of Alpha46 would Yashinski need to sell at a price of $51.75 to earn the same net operating income that it currently earns at a price of $45.00? (Round your answer up to the nearest whole number.)

Companies that use value-based pricing establish selling prices based on the economic value of the benefits that their products and services provide to customers.

Napp Heavy Machinery Corporation has developed a new drill press-model GJ-37-that has been designed to outperform a competitor's best-selling drill press.The competitor's product has a useful life of 30,000 hours of service,has operating costs that average $1.70 per hour,and sells for $169,000.In contrast,model GJ-37 has a useful life of 120,000 hours of service and its operating cost is $1.10 per hour.Napp has not yet established a selling price for model GJ-37. From a value-based pricing standpoint what range of possible prices should Napp consider when setting a price for GJ-37?

Chasin Industries Inc.has developed a new robot,model JB-32,that is designed to offer superior performance to a comparable robot sold by Chasin's main competitor.The competing robot sells for $11,000 and needs to be replaced after 1,000 hours of use.It also requires $1,000 of preventive maintenance during its useful life.Model JB-32'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 $1,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what is the reference value that Chasin should consider when pricing model JB-32?

Assume that the company has not yet determined a markup to use on the new product.The new product would require an investment of $1,200,000.The company requires a 25% rate of return on investment in all new products.The markup under the absorption costing approach would be closest to: