Exam 14: Pricing Products and Services

The management of Hettler 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 4,000 units of the new product annually.The new product would require an investment of $643,000 and has a required return on investment of 20%. 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.

The management of Jahns Corporation is considering introducing a new product--a compact barbecue.At a selling price of $59 per unit,management projects sales of 30,000 units.Launching the barbecue as a new product would require an investment of $500,000.The desired return on investment is 19%.The target cost per barbecue is closest to:

Lagace 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 20,000 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 $354,000 in total for the year.The company has invested $260,000 in this product and expects a return on investment of 13%. The markup on absorption cost for this product would be closest to:

Raymond Company estimates that an investment of $800,000 would be necessary to produce and sell 40,000 units of Product S each year.Costs associated with the new product would be: The company requires a 20% return on the investment in all products.The company used the absorption costing approach to cost-plus pricing as described in the text. -The selling price based on the absorption costing approach would be:

Mahan,Inc. ,uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Based on budgeted sales of 60,000 units next year,the unit product cost of a particular product is $56.20.The company's selling and administrative expenses for this product are budgeted to be $1,302,000 in total for the year.The company has invested $320,000 in this product and expects a return on investment of 8%. The selling price for this product based on the absorption costing approach would be closest to:

Quare 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 35,000 units per year. The company has invested $100,000 in this product and expects a return on investment of 11%. 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 14% 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,if the unit sales increase,then the markup under absorption costing will:

Eckhart 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 64,000 units next year,the unit product cost of a particular product is $13.60.The company's selling and administrative expenses for this product are budgeted to be $729,600 in total for the year.The company has invested $460,000 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:

Eckhart 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 64,000 units next year,the unit product cost of a particular product is $13.60.The company's selling and administrative expenses for this product are budgeted to be $729,600 in total for the year.The company has invested $460,000 in this product and expects a return on investment of 11%. -The markup on absorption cost for this product would be closest to:

The optimal markup on variable cost:

Epler Company's management believes that every 3% decrease in the selling price of one of the company's products leads to a 8% increase in the product's total unit sales.The product's price elasticity of demand as defined in the text is closest to:

Firestack Company's management believes that every 5% increase in the selling price of one of the company's products results in a 13% decrease in the product's total unit sales.The variable production cost of this product is $37.50 per unit and the variable selling and administrative cost is $4.30 per unit.The product's profit-maximizing price according to the formula in the text is closest to:

Altona Corporation's vice president in charge of marketing believes that every 3% increase in the selling price of one of the company's products would lead to a 5% decrease in the product's total unit sales.The product's absorption costing unit product cost is $13.50.The variable production cost is $7.80 per unit and the variable selling and administrative cost is $2.30 per unit. -The product's profit-maximizing price according to the formula in the text is closest to:

The following information is available on Browning Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data,the total selling and administrative expenses each year are:

Altona Corporation's vice president in charge of marketing believes that every 3% increase in the selling price of one of the company's products would lead to a 5% decrease in the product's total unit sales.The product's absorption costing unit product cost is $13.50.The variable production cost is $7.80 per unit and the variable selling and administrative cost is $2.30 per unit. -The product's price elasticity of demand as defined in the text is closest to:

Innes 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. The product's variable cost is $23.20 per unit. According to the formula in the text,the product's profit-maximizing price is closest to:

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

The management of Mozdzierz,Inc. ,is considering a new product that would have a selling price of $83 per unit and projected sales of 90,000 units.The new product would require an investment of $200,000.The desired return on investment is 15%. Required: Determine the target cost per unit for the new product.

The management of Fanton Corporation is considering introducing a new product--a compact lawn blower.At a selling price of $38 per unit,management projects sales of 60,000 units.The lawn blower would require an investment of $500,000.The desired return on investment is 18%. -The target cost per lawn blower is closest to:

Cost data relating to the single product produced by the Jones Company are given below: The Jones Company uses the absorption costing approach to cost-plus pricing described in the text with a desired markup of 60%.If the company plans to produce and sell 20,000 units each year,the selling price per unit would be: