Deck 13: Pricing Decisions and Cost Management

Question 1

A company operating in a perfectly competitive market has more leeway to set higher prices than a firm that is a monopolist.

Answer 1

False
Explanation:A monopolist has no competitors and has much more leeway to set high prices than a firm operating in a perfectly competitive market.

Question 2

Claudia Geer,controller,discusses the pricing of a new product with the sales manager,James Nolan.What major influences must Claudia and James consider in pricing the new product? Discuss each briefly.

Answer 2

The major influences are customers,competitors,and costs.
Customers: Managers must always examine pricing problems through the eyes of their customers.A price increase may cause customers to reject a company's product and choose a competing or substitute product.
Competitors: Competitors' reactions influence pricing decisions.At one extreme,a rival's prices and products may force a business to lower its prices to be competitive.At the other extreme,a business without a rival in a given situation can set higher prices.A business with knowledge of its rivals' technology,plant capacity,and operating policies is able to estimate its rivals' costs,which is valuable information in setting competitive prices.
Costs: Companies price products to exceed the costs of making them.The study of cost-behavior patterns gives insight into the income that results from different combinations of price and output quantities sold for a particular product.

Question 3

Which of the following statements is true of the cost of producing a product?

A)It controls pricing in highly competitive markets.
B)It affects the willingness of a company to supply a product.
C)It includes manufacturing costs,but not product design costs for pricing decisions.
D)It is not a factor to be taken into account while pricing a product.

Answer 3

B

Question 4

Which of the following are true regarding long-run pricing decisions?

A)they result in maximizing return on investment
B)they include adjusting product mix in a competitive environment
C)the price needs to be sufficient enough to break-even
D)use prices that include a reasonable return on invested capital

Question 5

As a general rule of economics,companies should only produce and sell units as long as ________.

A)there is customer demand for the product
B)there is a relatively small supply of the product when compared to past operating periods
C)the revenue from an additional unit exceeds the cost of producing it
D)there is a generous supply of low-cost direct materials

Question 6

For a company operating in a perfectly competitive market,cost information affects the pricing decisions of the company.

Question 7

Three major influences on pricing decisions are ________.

A)competition,costs,and customers
B)competition,demand,and production efficiency
C)continuous improvement,customer satisfaction,and supply
D)variable costs,fixed costs,and mixed costs

Question 8

In a noncompetitive environment,the key factor affecting pricing decisions is the ________.

A)customer's willingness to pay
B)price charged for alternative products
C)information on competitor's cost structure
D)minimum price acceptable to the firm

Question 9

Monopolists can charge prices without limitations as there is no competition for the product or service the monopolist provides.

Question 10

In markets with little or no competition,the key factor affecting price is the cost of production to the company.

Question 11

Which of the following statements is true about the factors that affect pricing decisions?

A)Information about competitors' technologies is not useful for pricing decisions.
B)Information about a competitor in a perfect market affects pricing decisions.
C)Increase in price of a substitute product does not affect pricing decisions.
D)Managers must always be aware of the competition when pricing their products

Question 12

Which of the following examples would have as its purpose the allocation of costs to motivate employees?

A)deciding on a selling g price for a product
B)encouraging sales representatives to emphasize high-margin products
C)to cost products a a "fair" price under a government contract
D)to cost inventories for reporting to external parties

Question 13

In setting prices for products and services,managers may attempt to charge what the customer is willing to pay however,too high a price may ________.

A)deter a customer from purchasing a product and seek alternatives
B)increase demand and demand for the product
C)indicate supply is too plentiful
D)decrease a competitor's market share

Question 14

Fluctuations in exchange rates between different countries' currencies affect costs and pricing decisions of a company.

Question 15

Companies must always examine their pricing ________.

A)based on the supply of the product
B)based on the full cost of producing the product and price to make a profit
C)through the eyes of their customers and then manage costs to produce a profit
D)based on the GAAP cost of producing the product and then add a mark-up

Question 16

Which of the following statements is true of costs and pricing decisions?

A)Companies get profit from selling products only when they are the price makers.
B)Companies supply products as long as the price the customer is willing to pay for its products exceeds the price that is charged by the competitor.
C)Companies supply products as long as there is a demand for the product in the market regardless of the price at which the products are sold.
D)Companies supply products as long as the revenues from selling the additional units exceed the cost of producing them.

Question 17

Which of the following is true of long-run pricing?

A)It is fixed at a level that recovers the variable cost of the company and a pre-determined profit markup.
B)It is generally a function of the market factors and the cost involved in production is generally not a consideration.
C)It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.
D)It is based only on internal requirements like cost and estimated rate of return as in the long run these requirements are the driving factors of any organization.

Question 18

In a perfectly competitive market,which of the following is a primary factor influencing pricing decisions?

A)cost of production
B)availability of raw materials in the market
C)information on competitor's cost structure
D)value customers place on product

Question 19

If U.S dollar strengthens against the Japanese Yen,Japanese producers selling goods in U.S markets will have to increase the prices of products to recover the extra cost arising from currency fluctuation.

Question 20

The value customers place on a product and the prices charged for competing products affect demand and the cost of producing and delivering the product affect supply.

Question 21

Gracius Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.Gracius Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity.The following per unit data apply for sales to regular customers:

For Gracius Manufacturing,what is the minimum acceptable price of this one-time-only special order?

A)$120
B)$160
C)$190
D)$380

Question 22

Which of the following is regarded as a purpose of cost allocation?

A)It helps in identifying the potential customers for a product.
B)It provides the profit margin earned.
C)It helps in maintaining decorum among managers.
D)It provides information for economic decisions.

Question 23

Gracius Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.Gracius Manufacturing has a policy of adding a 20% markup to full costs and currently has excess capacity.The following per unit data apply for sales to regular customers:

What is the full cost of the product per unit for Gracius Manufacturing?

A)$90
B)$140
C)$360
D)$432

Question 24

In a long-run,it is worthwhile to sell a product only if the selling price exceeds ________.

A)the total of all the direct costs of the product
B)the total manufacturing costs of the product
C)the total of the fixed costs of the value chain
D)full cost of the product and a markup that provides an adequate return on capital

Question 25

Grounded Coffee Products manufactures coffee tables.Grounded Coffee Products has a policy of adding a 10% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month:

Grounded Coffee Products is approached by an overseas customer to fulfill a one-time-only special order for 5000 units.All cost relationships remain the same except for a one-time setup charge of $60,000.No additional design,marketing,or distribution costs will be incurred.What is the minimum acceptable bid per unit on this one-time-only special order? (Round your final answer to the nearest cent. )

A)$184.00
B)$484.00
C)$172.00
D)$238.00

Question 26

Grounded Coffee Products manufactures coffee tables.Grounded Coffee Products has a policy of adding a 20% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month:

For long-run pricing of the coffee tables,what price will most likely be used by Grounded Coffee?

A)$64.75
B)$103.00
C)$167.75
D)$201.30

Question 27

For long-run pricing decisions,using stable prices has the advantage of ________.

A)minimizing the need to monitor competitor's prices frequently
B)reducing the need to change cost structures frequently
C)reducing competition
D)helping to build buyer-seller relationships

Question 28

Cool Air Inc. ,manufactures single room sized air conditioners.The cost accounting system estimates manufacturing costs to be $250 per air conditioner,consisting of 80% variable costs and 20% fixed costs.The company has surplus capacity available.It is Cool Air Inc.'s policy to add a 30% markup to full costs.
A medium sized motel chain is currently expanding and has decided to create more rooms and air condition all of its rooms,which are currently not air conditioned.Cool Air Inc.is invited to submit a bid to the motel chain.What per unit price will Cool Air Inc.most likely bid for this special order of 200 units? Assume that the price is being fixed for a long-term commitment.

A)$250.00 per unit
B)$200.00 per unit
C)$325.00 per unit
D)$300.00 per unit

Question 29

Which of the following statements about pricing is true?

A)pricing for products sold to the federal government can be priced to include all costs of the product including marketing costs
B)companies that sell commodity-like items usually use the cost-plus approach to pricing
C)companies in competitive markets use the market approach to pricing
D)regulators will intervene in noncompetitive industries and markets but usually will not regulate company pricing policies in competitive industries

Question 30

Jack's Back Porch manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $270 per table,consisting of 80% variable costs and 20% fixed costs.The company has surplus capacity available.It is Jack's Back Porch's policy to add a 60% markup to full costs.
A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Jack's Back Porch is invited to submit a bid to the hotel chain.What per unit price will Jack's Back Porch most likely bid on this long-term order?

A)$86.40 per unit
B)$162.00 per unit
C)$345.60 per unit
D)$432.00 per unit

Question 31

Golden Generator Supply is approached by Mr.Stephen,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Golden Generator Supply has excess capacity.The following per unit data apply for sales to regular customers:
$\begin{array}{ll}\text { Direct materials } & \$ 1800.00 \\\text { Direct manufacturing labor } & 130.00 \\\text { Variable manufacturing support } & 210.00 \\\text { Fixed manufacturing support } & \underline{150.00} \\\quad \text { Total manufacturing costs } & 2290.00 \\\text { Markup (20\% of total manufacturing costs) } & \underline{458.00} \\\text { Estimated selling price } & \$ 2748.00\end{array}$
For Golden Generator Supply,what is the minimum acceptable price of this one-time-only special order?

A)$1930.00
B)$2140.00
C)$2290.00
D)$2748.00

Question 32

Gracius Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.Gracius Manufacturing has a policy of adding a 20% markup to full costs and currently has excess capacity.The following per unit data apply for sales to regular customers:

If the European customer wanted a long-term commitment,and not a one-time-only special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains the same?

A)$110
B)$250
C)$300
D)$190

Question 33

Zolas' Heaters is approached by Ms.Leila,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Zolas' Heaters has excess capacity.The following per unit data apply for sales to regular customers:

If Ms.Leila wanted a long-term commitment,and not a one-time-special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains the same?

A)$790
B)$590
C)$520
D)$1027

Question 34

Cool Air Inc. ,manufactures single room sized air conditioners.The cost accounting system estimates manufacturing costs to be $230 per air conditioner,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Cool Air Inc.'s policy to add a 30% markup to full costs.
Cool Air Inc. ,is invited to bid on a one-time-only special order to supply 110 air conditioners.What is the lowest price Cool Air Inc.should bid on this special order?

A)$15,180
B)$25,300
C)$35,420
D)$32,890

Question 35

Jack's Back Porch manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $300 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Jack's Back Porch's policy to add a 70% markup to full costs.
Jack's Back Porch is invited to bid on a one-time-only special order to supply 150 rustic tables.What is the lowest price Jack's Back Porch should bid on this special order?

A)$45,000
B)$18,000
C)$27,000
D)$76,500

Question 36

Golden Generator Supply is approached by Mr.Stephen,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Golden Generator Supply has excess capacity.The following per unit data apply for sales to regular customers:
$$\begin{array} { l l } \text { Direct materials } & \$ 1900.00 \\\text { Direct manufacturing labor } & 120.00 \\\text { Variable manufacturing support } & 210.00 \\\text { Fixed manufacturing support } & \underline { 170.00 } \\\quad \text { Total manufacturing costs } & 2400.00 \\\text { Markup (25\% of total manufacturing costs) } & \underline { 600.00 } \\\text { Estimated selling price } & \$ 3000.00\end{array}$$
If Golden Generator Supply accepts the order at $2640,what is the amount contributed towards fixed costs and profit on a sales order of 1600 units?

A)$384,000
B)$656,000
C)$1,232,000
D)$992,000

Question 37

Zolas' Heaters is approached by Ms.Leila,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Zolas' Heaters has excess capacity.The following per unit data apply for sales to regular customers:
$\begin{array}{ll}\text { Direct materials } & \$ 450.00 \\\text { Direct manufacturing labor } & 160.00 \\\text { Variable manufacturing support } & 100.00 \\\text { Fixed manufacturing support } & \underline{210.00} \\\quad \text { Total manufacturing costs } & 920.00 \\\text { Markup (25\% of total manufacturing costs) } & \underline{230.00} \\\text { Estimated selling price } & \$ 1150.00 \\\end{array}$
For Zolas' Heaters,what is the minimum acceptable price of this one-time-only special order?

A)$710.00
B)$920.00
C)$610.00
D)$1150.00

Question 38

Which one of the following activities would most likely be considered a long-run pricing decision?

A)one-time-only special order pricing that would result in achieving the break-even point
B)product mix adjustments in a competitive market
C)setting prices to generate a reasonable rate of return on investment
D)changing prices in response to weak demand

Question 39

Golden Generator Supply is approached by Mr.Stephen,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Golden Generator Supply has excess capacity.The following per unit data apply for sales to regular customers:

If Mr.Stephen wanted a long-term commitment,and not a one-time-only special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains the same?

A)$650
B)$790
C)$869
D)$370

Question 40

Which of the following is true of price bidding with the federal government?

A)the price can only cover direct costs
B)the price can only cover direct costs and marketing costs
C)the price is based on costs that include fully allocated manufacturing and design costs but not include marketing costs
D)the price can include only fixed manufacturing costs and design costs but not include marketing costs

Question 41

Quick Connect manufactures high-tech cell phones.Quick Connect has a policy of adding a 25% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month:

Quick Connect Products is approached by an overseas customer to fulfill a one-time-only special order for 150 units.All cost relationships remain the same except for a one-time setup charge of $2025.No additional design,marketing,or distribution costs will be incurred.What is the minimum acceptable bid per unit on this one-time-only special order?

A)$30.20
B)$173.20
C)$186.70
D)$188.50

Question 42

An example of why a manager would perform cost allocations for economic decisions would be to cost inventories for reporting to the tax authorities.

Question 43

Which of the following explains the cost-plus approach to pricing decisions?

A)arriving at a price for the product based on the competitive pricing prevalent in the market
B)arriving at a price based on the perceived value to a customer given the cost of design and added features
C)arriving at a price based on the demand and supply trends in the market
D)arriving at a price that earns a target return on investment

Question 44

Explain the differences between short-run pricing decisions and long-run pricing decisions.

Question 45

Cost allocation data could be a valuable input to encourage design of products that are simpler to manufacture and less costly to service.

Question 46

Which of the following is an objective of value engineering?

A)to reduce cost by eliminating all value-added activities
B)to streamline and add non-value added activities
C)to reduce the total cost of the product
D)to understand competitors' product design

Question 47

Relevant costs for target pricing are ________.

A)variable manufacturing costs
B)variable manufacturing and variable nonmanufacturing costs
C)all fixed costs
D)all future costs,both variable and fixed

Question 48

Companies operating in competitive markets generally use the cost-plus approach to price products.

Question 49

Place the following steps for the implementation of target costing in order:

A)B D A C
B)B A D C
C)A D B C
D)A B C D

Question 50

Long-run pricing is an operational decision and not a strategic decision as perceived by many.

Question 51

Which of the following is true of value engineering?

A)It is the process of building a new product by first determining the selling price of the product.
B)It is the process by which a company analyzes its own process to reduce cost.
C)It is the process by which a systematic evaluation of all aspects of the value chain,with the objective of reducing costs and achieving a predetermined quality level.
D)It is the process by which the competitor's products are disassembled and analyzed.

Question 52

One purpose of cost allocations is to justify costs to establish a "fair" price,often required by law and government contracts.

Question 53

Two different approaches to pricing decisions are market based and cost-plus.

Question 54

Cost allocation is not required to cost inventories for reporting to external parties.

Question 55

Longball Company manufactures basketball backboards.The following information pertains to the company's normal operations per month:


Required:
a.For long-run pricing,what is the full-cost base per unit?
b.Longball Company is approached by an overseas city to fulfill a one-time-only special order for 1,000 units.All cost relationships remain the same except for an additional one-time setup charge of $40,000.No additional design,marketing,or distribution costs will be incurred.What is the minimum acceptable bid per unit on this one-time-only special order?

Question 56

Companies operating in competitive markets should ideally use cost-plus approach to pricing.

Question 57

Greentree Incorporated manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $120 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Greentree's policy to add a 30% markup to full costs.
a.Greentree Incorporated is invited to bid on an order to supply 100 rustic tables.What is the lowest price Greentree should bid on this one-time-only special order?
b.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Greentree Incorporated is invited to submit a bid to the hotel chain.What is the lowest price per unit Greentree should bid on this long-term order?

Question 58

In long-run pricing,decisions should consider all manufacturing and non-manufacturing costs but should consider all future direct and indirect costs as irrelevant.

Question 59

Short-run prices should at least recover ________.

A)full cost of producing a product
B)fixed manufacturing overhead
C)variable cost of producing a product
D)variable and fixed manufacturing overhead

Question 60

Which of the following is true of target pricing?

A)it is used for short-term pricing decisions.
B)it is one form of cost-based pricing.
C)a price is an estimate of customers' perceived value of the product.
D)a price is calculated by adding a markup component to the cost base.

Question 61

Managers need to understand customers because ________.

A)they are the key in influencing the board decisions and help in formulating policies with the suppliers
B)they guide the managers to formulate pricing policies
C)they are more knowledgeable as they easy access to price and other information online
D)they influence the costing decisions of the product

Question 62

Sales of Granite City Products Inc.have been on a steady decline for the last 12 months.A market research study conducted revealed that the product of Granite City Products Inc.can be sold only for $480 as opposed to the current market price charged of $580 per unit.Granite City Products Inc.has decided to revise its sales price to $480.The annual sales target volume of the product after price revision is 280 units.Granite City Products Inc.wants to earn 30% on its sales amount.
What is the target cost per unit?

A)$625.00
B)$336.00
C)$480.00
D)$145.00

Question 63

Twenty Technologies,currently sells 17" monitors for $280.It has costs of $220.A competitor is bringing a new 17" monitor to market that will sell for $230.Management believes it must lower the price to $230 to compete in the market for 17" monitors.Twenty Technologies believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Twenty Technologies' sales are currently 5100 monitors per year.
What is the target cost if the target operating income is 25% of sales?

A)$230.00
B)$210.00
C)$172.50
D)$165.00

Question 64

After conducting a market research study,Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line.It is estimated that the new interior door can be sold at a target price of $260.The annual target sales volume for interior doors is 20,000.Magnificent has target operating income of 40% of sales.
What is the target cost for each interior door?

A)$364
B)$260
C)$156
D)$104

Question 65

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide adequate operating income is referred to as ________.

A)cost-plus pricing
B)target costing
C)kaizen costing
D)full costing

Question 66

After conducting a market research study,Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line.It is estimated that the new interior door can be sold at a target price of $270.The annual target sales volume for interior doors is 29,000.Magnificent has target operating income of 40% of sales.
What are target sales revenues?

A)$3,132,000
B)$4,698,000
C)$7,830,000
D)$10,962,000

Question 67

Which of the following identifies an estimated price customers are willing to pay and then computes the cost to be achieved to earn the desired profit.

A)Cost-plus pricing
B)Target costing
C)Kaizen costing
D)Peak-load costing

Question 68

Block Island TV currently sells large televisions for $380.It has costs of $290.A competitor is bringing a new large television to market that will sell for $320.Management believes it must lower the price to $320 to compete in the market for large televisions.Marketing believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Block Island TV sales are currently 120,000 televisions per year.
What is the target cost if the company wants to maintain its same income level,and marketing is correct (rounded to the nearest cent)?

A)$224.00
B)$238.18
C)$230.00
D)$290.00

Question 69

Sales of Granite City Products Inc.have been on a steady decline for the last 12 months.A market research study conducted revealed that the product of Granite City Products Inc.can be sold only for $440 as opposed to the current market price charged of $540 per unit.Granite City Products Inc.has decided to revise its sales price to $440.The annual sales target volume of the product after price revision is 260 units.Granite City Products Inc.wants to earn 30% on its sales amount.
What are the target sales revenues?

A)$148,720
B)$114,400
C)$80,080
D)$42,120

Question 70

Which of the following is true of target costing?

A)the target cost is the target price minus the target operating income per unit
B)the target cost includes all past costs to produce the product
C)input from suppliers and distributors are not relevant.
D)a key goal is to minimize value added activities of a product.

Question 71

All of the following are typical results of value engineering except:

A)assembling and analyzing competitor's product.
B)setting the target cost and then designing the product.
C)changes in material specifications to reduce costs
D)modifications in process methods

Question 72

Block Island TV currently sells large televisions for $380.It has costs of $290.A competitor is bringing a new large television to market that will sell for $310.Management believes it must lower the price to $310 to compete in the market for large televisions.Marketing believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Block Island TV sales are currently 110,000 televisions per year.
What is the target cost per unit if target operating income is 35% of sales?

A)$108.50
B)$133.00
C)$201.50
D)$247.00

Question 73

After conducting a market research study,Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line.It is estimated that the new interior door can be sold at a target price of $250.The annual target sales volume for interior doors is 28,000.Magnificent has target operating income of 40% of sales.
What is the target operating income?

A)$2,800,000
B)$4,200,000
C)$7,000,000
D)$9,800,000

Question 74

Sales of Granite City Products Inc.have been on a steady decline for the last 12 months.A market research study conducted revealed that the product of Granite City Products Inc.can be sold only for $500 as opposed to the current market price charged of $600 per unit.Granite City Products Inc.has decided to revise its sales price to $500.The annual sales target volume of the product after price revision is 200 units.Granite City Products Inc.wants to earn 40% on its sales amount.
What is the total target cost?

A)$140,000
B)$60,000
C)$100,000
D)$40,000

Question 75

Sales of Granite City Products Inc.have been on a steady decline for the last 12 months.A market research study conducted revealed that the product of Granite City Products Inc.can be sold only for $420 as opposed to the current market price charged of $520 per unit.Granite City Products Inc.has decided to revise its sales price to $420.The annual sales target volume of the product after price revision is 280 units.Granite City Products Inc.wants to earn 30% on its sales amount.
What is the target operating income?

A)$82,320
B)$35,280
C)$117,600
D)$152,880

Question 76

In relation to target costing,which of the following best describes target cost per unit?

A)It is the targeted cost of producing one unit to achieve the current year's budgeted profit.
B)It is the estimated long-run cost of a product that enables the company to achieve its target operating income.
C)It is the cost that can be achieved by ensuring that the company produced its products at maximum efficiency.
D)It is the budgeted cost that the company estimates in producing a unit in the current budget period.

Question 77

When target costing and target pricing are used together ________.

A)the target cost is established first,then the target price
B)the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit
C)the focus of target pricing is to undercut the competition
D)target costs are generally higher than current costs

Question 78

Block Island TV currently sells large televisions for $380.It has costs of $320.A competitor is bringing a new large television to market that will sell for $360.Management believes it must lower the price to $360 to compete in the market for large televisions.Marketing believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Block Island TV sales are currently 150,000 televisions per year.
What is the change in operating income if marketing is correct and only the sales price is changed?

A)$6,600,000
B)$3,000,000
C)$(6,600,000)
D)($2,400,000)

Question 79

Twenty Technologies,currently sells 17" monitors for $270.It has costs of $230.A competitor is bringing a new 17" monitor to market that will sell for $245.Management believes it must lower the price to $245 to compete in the market for 17" monitors.Twenty Technologies believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Twenty Technologies's sales are currently 5200 monitors per year.
What is the change in operating income if marketing manager is correct and only the sales price is changed?

A)$130,000
B)$122,200
C)($122,200)
D)($130,000)

Question 80

After conducting a market research study,Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line.It is estimated that the new interior door can be sold at a target price of $240.The annual target sales volume for interior doors is 21,000.Magnificent has target operating income of 20% of sales.
What is the target cost?

A)$6,048,000
B)$5,040,000
C)$4,032,000
D)$1,008,000