Exam 15: Pricing Products and Services

Hepler Corporation would like to use target costing for a new product that is under consideration.At a selling price of $76 per unit,management projects sales of 50,000 units.The new product would require an investment of $400,000.The desired return on investment is 12%. Required: Determine the target cost per unit for the new product.

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

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:

Management of Daubert Corporation is considering a new product,an outdoor speaker that would have a selling price of $43 per unit and projected sales of 60,000 units.Launching the new product would require an investment of $300,000.The desired return on investment is 13%. Required: Determine the target cost per unit for the outdoor speaker.

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:

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:

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.

Finn Corporation's management believes that every 5% increase in the selling price of one of the company's products results in a 6% decrease in the product's total unit sales.The variable production cost of this product is $38.30 per unit and the variable selling and administrative cost is $1.00 per unit. The product's profit-maximizing price according to the formula in the text is closest to:

Warvel Corporation's management has found that every 5% increase in the selling price of one of the company's products leads to an 8% decrease in the product's total unit sales.The variable production cost of the product is $18.00 per unit and the variable selling and administrative cost is $12.00 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:

Which of the following items are included in calculating the markup percentage under the absorption approach to cost-plus pricing described in the text? $\quad$ $\quad$ Variable Cost Fixed Cost Desired Production Selling Production Selling Profit A. $\quad$ Yes No Yes No Yes B. $\quad$ No Yes No Yes Yes C. $\quad$ No No Yes Yes Yes D. $\quad$ No Yes No Yes No

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:

Under the absorption approach to costs-plus pricing described in the text,selling and administrative costs are included in the cost base when computing a selling price.

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. Per Unit Total Variable production costs ........................ \ 20 \ 1,200,000 Fixed production costs..................... \ 12 \ 720,000 Variable selling and administrative costs........ \ 6 \ 360,000 Fixed selling and administrative costs........... \ 8 \ 480,000 -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:

Surent Corporation has the following information available on Product K: The company uses the absorption costing approach to cost-plus pricing described in the text and a 50% markup.Based on these data,the company's total selling and administrative expenses associated with Product K each year are: \begin{array}{llcc} \text {Number of units sold each year............. } &80,000 \\ \text {Unit product cost................................. } &\$25\\ \text { Investment in Product \mathrm{K} .................... } &\$400,000\\ \text { Required return on investment............ } &20\%\\\end{array}

A new product,an automated crepe maker,is being introduced at Miyake Corporation.At a selling price of $73 per unit,management projects sales of 20,000 units.Launching the crepe maker as a new product would require an investment of $400,000.The desired return on investment is 17%.The target cost per crepe maker is 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:

Dickson Corporation 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 60,000 units per year. The company has invested $320,000 in this product and expects a return on investment of 15%. Direct labor is a variable cost in this company. Direct materials.................................................... Direct labor........................................................... Variable manufacturing overhead.......................... Fixed manufacturing overhead............................... Variable selling and administrative expenses.......... Fixed selling and administrative expenses.............. Per Unit Per Year \ 18.20 \ 22.30 \ 2.90 \ 1,296,000 \ 1.10 \ 1,104,000 -The markup on absorption cost 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: Selling Price Unit Sales \ 74.00 4,300 \ 68.00 5,090

Erdahl Corporation's management believes that every 7% increase in the selling price of one of the company's products leads to a 11% decrease in the product's total unit sales.The product's price elasticity of demand as defined in the text is closest to: