Exam 13: Pricing Decisions and Cost Management

Answer the following questions using the information below: Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Direct materials \ 1,125,000 Direct labor 775,000 Manufacturing overhead Variable 840,000 Fixed 645,000 Selling and administrative Variable 360,000 Fixed 480,000 Total costs \ 4,225,000 Wilde has an annual target operating income of $900,000. -The markup percentage for setting prices as a percentage of the variable cost of the product is ________.

Answer the following questions using the information below: Sales of Blair Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Blair Inc. can be sold only for $400 as opposed to the current market price charged of $500 per unit. Blair Inc. has decided to revise its sales price to $400. The annual sales target volume of the product after price revision is 200 units. Blair Inc. wants to earn 18% on its sales amount. -What is the target operating income?

To comply with antitrust laws,a company must not engage in predatory pricing,dumping,or collusive pricing which lessen competition,put another company at a competitive disadvantage,or harm consumers.

Which of the following is true of locked-in costs?

Purple Trees manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $240 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Purple Trees' policy to add a 75% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Purple Trees is invited to submit a bid to the hotel chain.What per unit price will Purple Trees most likely bid on this long-term order?

Companies operating in competitive markets generally use the market-based approach.

Insensitivity of demand to price changes is called demand inelasticity.

Gracius Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.Gracius Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity.The following per unit data apply for sales to regular customers: Varible costs: Direct materials \ 30 Direct labor 10 Manufacturing overhead 20 Marketing costs 10 Fixed costs: Manufacturing overhead 100 Marketing costs 190 Total costs 190 Markup ( 10\% of total costs) 1909 Estimated ælling price \ 20 If the European customer wanted a long-term commitment,and not a one-time-only special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains same?

Life-cycle budgeting is particularly important when ________.

________ is the practice of charging a higher price for the same product or service when demand approaches the physical limit of the capacity to produce that product or service.

Answer the following questions using the information below: Jamal, Kareem, Rashid and Associates are in the process of evaluating its new client services for the business consulting division. • Estate Planning, a new service, incurred $100,000 in development costs and employee training. • The direct costs of providing this service, which is all labor, averages $27 per hour. • Other costs for this service are estimated at $400,000 per year. • The current program for estate planning is expected to last for two years. At that time, a new law will be in place that will require new operating guidelines for the tax consulting. • Customer service expenses average $95 per client, with each job lasting an average of 400 hours. The current staff expects to bill 40,000 hours for each of the two years the program is in effect. Billing averages $42 per hour. -What is the estimated life-cycle operating income for the first two years?

Supervision costs have both value-added and non-value-added components.

In a long-run,it is worthwhile to sell a product only if the selling price exceeds ________.

Answer the following questions using the information below: After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales. -What is the target cost?

Value engineering cannot decrease value-added costs.

Ski Valet provides materials that let people teach themselves how to snow ski.It has six different skill-level programs.Each one includes visual and audio learning aids along with a workbook that can be submitted to the company for grading and evaluation purposes,if the person so desires. The accounting system of Ski Valet is very traditional in its reporting functions with the calendar year being the company's fiscal year.It includes an abundance of information that can be used for various reporting purposes. The company has found that any new idea soon runs its course with an effective life of about three years.Therefore,the company is always in the development stage of some new program.Program development requires experts in the area to provide the know-how of the item being developed and a development team that puts together the video,audio,and workbook materials.The actual costs of reproducing the packages are relatively inexpensive when compared to the development costs. Required: How might product life-cycle budgeting aid the company in improving its overall operations?

Hitz Video Rental is evaluating rental prices.Historical data show that Friday and Saturday have twice the rentals of other days of the week.The following information pertains to the store's normal operations per week: Average rentals per day on Friday and Saturday 1,150 Average rentals per day on Sunday through Thursday 500 Store hours per day 12 Total units available for rent 10,000 Variable operating costs per hour \ 40 Marketing costs per week \ 1,500 Customer service costs per week \ 250 The store manager wants to charge more for rentals on Friday and Saturday.What is the minimum price that should be charged during peak rental days?

Place the following steps for the implementation of target costing in order: $A =$ Derive a target cost $\mathrm { B } =$ Develop a target price $\mathrm { C } =$ Perform value engineering $\mathrm { D } =$ Determine target operating income

Grace Greeting Cards Incorporated is starting a new business venture and are in the process of evaluating its product lines.Information for one new product,traditional parchment grade cards,is as follows: • Sixteen times each year,a new card design will be put into production.Each new design will require $600 in setup costs. • The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years. • Direct costs of producing the designs average $0.50 each. • Indirect manufacturing costs are estimated at $50,000 per year. • Customer service expenses average $0.10 per card. • Current sales are expected to be 2,500 units of each card design.Each card sells for $3.50. • Sales units equal production units each year. Required: a.What are the estimated life-cycle revenues? b.What is the estimated life-cycle operating income for the first year? c.What is the estimated life-cycle operating income per year for the years after the first year? d.What is the total estimated life-cycle operating income?

Answer the following questions using the information below: Velim Electronics manufactures electric shavers and is considering decreasing the price by $2 a unit for the coming year. With a $2 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $1 per unit. Currently Projected Demand 10,000 units 12,500 units Selling price \ 51 \ 49 Variable costs per unit \ 45 \ 44 -Would you recommend the $2 price decrease?