Exam 12: Pricing Products and Services

Pedrotti Corporation would like to use target costing for a new product it is considering introducing.At a selling price of $28 per unit, management projects sales of 30, 000 units.The new product would require an investment of $300, 000.The desired return on investment is 17%.The target cost per unit is closest to:

Hanson 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 price elasticity of demand as defined in the text is closest to:

Bluhm Corporation's management believes that every 2% increase in the selling price of one of the company's products would lead to a 4% decrease in the product's total unit sales.The product's variable cost is $17.50 per unit. The product's profit-maximizing price according to the formula in the text is closest to:

In the absorption approach to cost-plus pricing, the anticipated markup in dollars is NOT equal to the anticipated profit.

Eckert Corporation 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 18, 000 units next year, the unit product cost of a particular product is $60.40.The company's selling and administrative expenses for this product are budgeted to be $370, 800 in total for the year.The company has invested $260, 000 in this product and expects a return on investment of 11%. The selling price based on the absorption costing approach for this product would be closest to:

Alley 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 a 13% decrease in the product's total unit sales.The product's absorption costing unit product cost is $17.40.The variable production cost is $4.10 per unit and the variable selling and administrative cost is $4.80 per unit. The product's price elasticity of demand as defined in the text is closest to:

If a product is price inelastic, then only a very large change in selling price will result in a substantial change in the volume of units sold.

If the unit sales for one product are more sensitive to price increases than another product, then its markup over variable cost should be less than for the other product if the company wants to maximize profit.

Qualls Corporation 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 48, 000 units per year. The company has invested $360, 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. 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.

Holding all other things constant, an increase in fixed production costs will affect:

Perwin Corporation estimates that an investment of $400, 000 would be needed to produce and sell 30, 000 units of Product B each year.At this level of activity, the unit product cost would be $25.Selling and administrative expenses would total $350, 000 each year.The company uses the absorption costing approach to cost-plus pricing described in the text.If a 15% rate of return on investment is desired, then the required markup for Product B would be closest to:

Eckert Corporation 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 18, 000 units next year, the unit product cost of a particular product is $60.40.The company's selling and administrative expenses for this product are budgeted to be $370, 800 in total for the year.The company has invested $260, 000 in this product and expects a return on investment of 11%. The markup on absorption cost for this product would be closest to:

Eakins Corporation has just developed a new product.At an expected sales level of 60, 000 units per year, the company anticipates that the following costs will be incurred: Eakins Corporation uses the absorption costing approach to cost-plus pricing as described in the text. The new product would require an investment of $1, 200, 000 on which the company would like to earn a return of 22 percent.The markup using the absorption costing approach would be:

The management of Archut 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 $3, 002, 400 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.

Bluhm Corporation's management believes that every 2% increase in the selling price of one of the company's products would lead to a 4% decrease in the product's total unit sales.The product's variable cost is $17.50 per unit. The product's price elasticity of demand as defined in the text is closest to:

The markup over cost under the absorption costing approach would increase if the required rate of return increases, holding everything else constant.

Merced Corporation estimates that an investment of $600, 000 would be necessary to produce and sell 50, 000 units of a new product each year.Other costs associated with the new product would be: The company requires a 15% return on the investment in all products.The company uses the absorption costing approach costing to pricing as described in the text. The selling price would be closest to:

The management of Kizer 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 8, 000 units of the new product annually.The new product would require an investment of $1, 580, 000 and has a required return on investment of 10%. The unit target selling price using the absorption costing approach is closest to:

Most of the opportunities to reduce the cost of a product come from designing the product so that it is simple to make, uses inexpensive parts, and is robust and reliable.

Holding all other things constant, an increase in variable selling costs will affect: