Exam 28: Pricing Decisions

Hilfiger Industries Inc.has developed a new forklift,model UH-40,that is designed to offer superior performance to a comparable forklift sold by Hilfiger's main competitor.The competing forklift sells for $96,000 and needs to be replaced after 1,000 hours of use.It also requires $9,000 of preventive maintenance during its useful life.Model UH-40'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 $13,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what is model UH-40's economic value to the customer over its 2,000 hour life?

Spach Corporation manufactures numerous products, one of which is called Beta68. The company has provided the following data about this product: -Management is considering decreasing the price of Beta68 by 5%,from $16.00 to $15.20.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 110,000 units to 121,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Beta68 earn at a price of $15.20 if this sales forecast is correct?

Alway Candy Corporation is implementing a target costing approach for its latest new product,the "Big Glob" candy bar.The following information relates to the Big Glob: Based on this information,what is Alway's target selling price per bar for the Big Glob?

Herrell Corporation manufactures numerous products, one of which is called Delta11. The company has provided the following data about this product: -Management is considering increasing the price of Delta11 by 5%,from $29.00 to $30.45.The company's marketing managers estimate that this price hike would decrease unit sales by 10%,from 110,000 units to 99,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Delta11 earn at a price of $30.45 if this sales forecast is correct?

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 is the differentiation value offered byGZ-29 relative to the competitor's offering for each 30,000 hours of service?

Gama Avionics Corporation has developed a new high pressure pump-model SF-22-that has been designed to outperform a competitor's best-selling high pressure pump.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 $109,000.In contrast,model SF-22 has a useful life of 60,000 hours of service and its operating cost is $1.10 per hour.Gama has not yet established a selling price for model SF-22. Required: From a value-based pricing standpoint what is model SF-22's economic value to the customer over its 60,000 hour useful life?

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 range of possible prices should Tavis consider when setting a price for FI-73?

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 range of possible prices should Morice consider when setting a price for model IA-05?

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: -Assume that the total traceable fixed expense does not change.If Chruch decreases the price of Tau42 to $60.16,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $64.00? (Your answer should be rounded to the nearest 0.1%.)

Weitman Corporation manufactures numerous products, one of which is called Epsilon50. 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 Epsilon50 would Weitman need to sell at a price of $31.61 to earn the same net operating income that it currently earns at a price of $29.00? (Round your answer up to the nearest whole number.)

Morr Logistic Solutions Corporation has developed a new forklift-model QY-49-that has been designed to outperform a competitor's best-selling forklift. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $3.70 per hour, and sells for $109,000. In contrast, model QY-49 has a useful life of 40,000 hours of service and its operating cost is $2.10 per hour. Morr has not yet established a selling price for model QY-49. -From a value-based pricing standpoint what is QY-49's economic value to the customer over its 40,000 hour useful life?

Home Products,Inc.,is planning the introduction of a new food dryer.To compete effectively,the dryer would have to be priced at no more than $40 per unit.An investment of $600,000 would have to be made in order to produce and sell the new dryer.The company requires a return on investment of at least 25% on new products.Assuming that the company expects to produce and sell 30,000 dryers per year,the target cost per dryer would be closest to:

Target costing is primarily used with well-established products.

Maccarone Corporation manufactures numerous products,one of which is called Tau10.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 Tau10? b.Management is considering decreasing the price of Tau10 by 5%,from $36.00 to $34.20.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 130,000 units to 143,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will Tau10 earn at a price of $34.20 if this sales forecast is correct? c.Assuming that the total traceable fixed expense does not change,if Maccarone decreases the price of Tau10 to $34.20,what percentage change in unit sales would provide the same net operating income that it currently earns at a price of $36.00? (Round your answer to the nearest one-tenth of a percent.)

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 markup percentage on absorption cost is closest to:

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 reference value that Tavis should consider when pricing model FI-73?

Kinsley Corporation manufactures numerous products, one of which is called Kappa03. The company has provided the following data about this product: -Management is considering increasing the price of Kappa03 by 7%,from $36.00 to $38.52.The company's marketing managers estimate that this price hike would decrease unit sales by 10%,from 50,000 units to 45,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Kappa03 earn at a price of $38.52 if this sales forecast is correct?

Secore Robotics Corporation has developed a new robot-model TR-53-that has been designed to outperform a competitor's best-selling robot.The competitor's product has a useful life of 20,000 hours of service,has operating costs that average $1.30 per hour,and sells for $109,000.In contrast,model TR-53 has a useful life of 100,000 hours of service and its operating cost is $0.80 per hour.Secore has not yet established a selling price for model TR-53. From a value-based pricing standpoint what is the reference value that Secore should consider when pricing model TR-53?

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 absorption costing unit product cost is:

Twisdale Corporation manufactures numerous products, one of which is called Omicron52. The company has provided the following data about this product: -What is the net operating income for product Omicron52 at the current price?