Exam 22: Pricing Products and Services

Management of Fabiano Corporation is considering a new product, an outdoor speaker that would have a selling price of $43 per unit and projected sales of 20,000 units. Launching the new product would require an investment of $600,000. The desired return on investment is 14%. Required: Determine the target cost per unit for the outdoor speaker.

The markup over cost under the absorption costing approach would increase if the unit product cost increases, holding everything else constant.

Edelheit Company uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 26,000 units next year, the unit product cost of a particular product is $24.20. The company's selling and administrative expenses for this product are budgeted to be $629,000 in total for the year. The company has invested $340,000 in this product and expects a return on investment of 14%. -The markup on absorption cost for this product would be closest to:

Okano Company's management believes that every 5% increase in the selling price of one of the company's products would lead to a 7% decrease in the product's total unit sales. The variable cost per unit of this product is $47.00. Required: a. Compute the product's price elasticity of demand as defined in the text. b. Compute the product's profit-maximizing price according to the formula in the text.

Madonia Corporation is introducing a new product whose direct materials cost is $37 per unit, direct labor cost is $19 per unit, variable manufacturing overhead is $6 per unit, and variable selling and administrative expense is $4 per unit. The annual fixed manufacturing overhead associated with the product is $91,000 and its annual fixed selling and administrative expense is $42,000. Management plans to produce and sell 7,000 units of the new product annually. The new product would require an investment of $595,000 and has a required return on investment of 20%. Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. 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 target selling price for the new product using the absorption costing approach.

Allen Corporation's vice president in charge of marketing believes that every 8% increase in the selling price of one of the company's products would lead to an 11% decrease in the product's total unit sales. The product's absorption costing unit product cost is $10.70. The variable production cost is $1.50 per unit and the variable selling and administrative cost is $4.40 per unit. -The product's price elasticity of demand as defined in the text is closest to:

Holding all other things constant, an increase in the company's required ROI will affect:

The management of Store 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 $1,140,000 and has a required return on investment of 10%. -To the nearest whole percent, the markup percentage on absorption cost is:

In the absorption approach to cost-plus pricing, which costs below are included in the cost base? Fixed manufacturing Fixed selling and overhead administrative A) Yes Yes B) Yes No C) No Yes D) No No

Rizer Corporation manufactures 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 40,000 units per year. The company has invested $200,000 in this product and expects a return on investment of 15%. Required: a. Compute the markup on absorption cost. b. Compute the selling price of the product using the absorption costing approach.

Dieckman Company makes 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 71,000 units per year. The company has invested $360,000 in this product and expects a return on investment of 13%. Direct labor is a variable cost in this company. -The markup on absorption cost is closest to:

Penrod Company wants to manufacture and sell a new electric shaver. To compete effectively, the shaver would have to be priced at no more than $40 per unit. The following additional information is available: The target cost per shaver would be:

The management of Store 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 $1,140,000 and has a required return on investment of 10%. -The unit target selling price using the absorption costing approach is closest to:

Demand for a product is said to be inelastic if a change in price has little effect on the number of units sold.

Werry Company is about to introduce a new product. It is expected that the following costs would be incurred when 25,000 units are produced and sold in a year: Per Unit Total Variable production costs. \ 14 Fixed production costs. \ 6 \ 150,000 Variable selling and administrative costs. \ 4 Fixed selling and administrative costs \ 2 \ 50,000 Werry Company uses the absorption costing approach to cost-plus pricing as described in the text. -Assume that Werry Company has not yet determined a markup to use on the new product. The new product would require an investment of $800,000. The company requires a 20% rate of return on investment on all new products. The markup under the absorption costing approach would be closest to:

Inkeo Company recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below. Selling Price Unit Sales \ 12.00 4,300 \ 11.00 5,030 The product's variable cost is $12.70 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:

Qudsi Company 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 36,000 units per year. The company has invested $580,000 in this product and expects a return on investment of 12%. Required: a. Compute the markup on absorption cost. b. Compute the selling price of the product using the absorption costing approach. c. Assume that every 10% increase in price leads to a 13% decrease in quantity sold. Assuming no change in cost structure and that direct labor is a variable cost, compute the profit-maximizing price.

Edelheit Company uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 26,000 units next year, the unit product cost of a particular product is $24.20. The company's selling and administrative expenses for this product are budgeted to be $629,000 in total for the year. The company has invested $340,000 in this product and expects a return on investment of 14%. -The selling price based on the absorption costing approach for this product would be closest to:

The management of Nerby Corporation is considering introducing a new product--a compact lawn blower. At a selling price of $28 per unit, management projects sales of 40,000 units. The lawn blower would require an investment of $900,000. The desired return on investment is 20%. -The target cost per lawn blower is closest to:

Target costing is primarily used when developing a new product.