Exam 12: Pricing Products and Services

Pashicke Corporation 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. The product's variable cost is $17.10 per unit. Required: a.Compute the product's price elasticity of demand as defined in the text to two decimal places. b.Compute the product's profit-maximizing price according to the formula in the text.

The markup over cost under the absorption costing approach would increase if selling and administrative expenses increase, holding everything else constant.

Gillis Corporation's marketing manager believes that every 10% increase in the selling price of one of the company's products would lead to a 15% decrease in the product's total unit sales.The product's absorption costing unit product cost is $20.00.The variable production cost is $6.00 per unit and the variable selling and administrative cost is $3.00.The fixed selling and administrative expense averages $0.50 per unit. Required: a.Compute the product's price elasticity of demand as defined in the text to two decimal places. b.Compute the product's profit-maximizing price according to the formula in the text.

Lacy 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 86, 000 units next year, the unit product cost of a particular product is $81.60.The company's selling and administrative expenses for this product are budgeted to be $1, 247, 000 in total for the year.The company has invested $360, 000 in this product and expects a return on investment of 12%. The markup on absorption cost for this product would be closest to:

Holding all other things constant, if the price elasticity of demand increases (i.e. , becomes more negative), then the markup under the economists' approach to pricing will:

Which of the following items are included in calculating the markup percentage under the absorption approach to cost-plus pricing described in the text?

Aldot 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 Aldot's target selling price per bar for the Big Glob?

The management of Brockington Corporation is considering introducing a new product-a compact barbecue.At a selling price of $80 per unit, management projects sales of 70, 000 units.Launching the barbecue as a new product would require an investment of $400, 000.The desired return on investment is 15%.The target cost per barbecue is closest to:

Price elasticity measures the degree to which consumers resent an increase in price.

Clulow Corporation 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. The product's variable cost is $10.50 per unit. The product's price elasticity of demand as defined in the text is closest to:

Ingham Corporation 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. The product's variable cost is $16.40 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:

The management of Rispoli Corporation is considering introducing a new product-a compact lawn blower.At a selling price of $38 per unit, management projects sales of 10, 000 units.The lawn blower would require an investment of $700, 000.The desired return on investment is 11%. The desired profit according to the target costing calculations is:

In target costing, effort is concentrated on effectively marketing the product to maximize its selling price.

If the formula for the markup percentage on absorption cost is used for setting prices, then the company's desired return on investment (ROI)will not usually be attained unless the assumed number of units sold is actually sold.

Gordy Corporation's management has found that every 3% increase in the selling price of one of the company's products leads to a 6% decrease in the product's total unit sales.The product's absorption costing unit product cost is $22.00.The variable production cost of the product is $6.80 per unit and the variable selling and administrative cost is $2.40 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:

Ritchie 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 37, 000 units per year.The company has invested $160, 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.

The management of Featherston, Inc. , is considering a new product that would have a selling price of $77 per unit and projected sales of 50, 000 units.The new product would require an investment of $100, 000.The desired return on investment is 20%. Required: Determine the target cost per unit for the new product.

Desalvo Corporation is introducing a new product whose direct materials cost is $41 per unit, direct labor cost is $20 per unit, variable manufacturing overhead is $5 per unit, and variable selling and administrative expense is $4 per unit.The annual fixed manufacturing overhead associated with the product is $120, 000 and its annual fixed selling and administrative expense is $8, 000.Management plans to produce and sell 8, 000 units of the new product annually.The new product would require an investment of $2, 192, 000 and has a required return on investment of 10%.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 selling price for the new product using the absorption costing approach.

Holding all other things constant, an increase in how sensitive customers are to price would affect:

When using the absorption approach to cost-plus pricing described in the text: