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Exam 13: Pricing Decisions and Cost Management

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Question 51

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Answer the following questions using the information below: Purple Purpose Inc., is in the process of evaluating a new product using the following information: • A new transformer has two production runs each year, each with $10,000 in setup costs. • The new transformer incurred $30,000 in development costs and is expected to be produced over the next three years. • Direct costs of producing the transformers are $40,000 per run of 4,500 transformers each. • Indirect manufacturing costs charged to each run are $45,000. • Destination charges for each transformer average $1.00. • Customer service expenses average $0.20 per transformer. • The transformers are selling for $25 the first year and will increase by $3 each year thereafter. • Sales units equal production units each year. -What is the estimated life-cycle operating income for the first year?

A) ($5,800)
B) (2,600)
C) 2,600
D) 5,800

E) A) and B)
F) None of the above

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Question 52

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Samuels Company is considering pricing its 10,000-gallon petroleum tanks using either variable manufacturing or full product costs as the base.The variable cost base provides a prospective price of $6,000 and the full cost base provides a prospective price of $6,100.The difference between the two prices is ________.

A) the estimated amount of profit
B) that the variable cost base estimates fixed costs in the markup percentage while the full cost base includes an amount for fixed costs
C) known as price discrimination
D) caused by the inability of most companies to estimate fixed cost per unit with any degree of reliability

E) A) and B)
F) B) and D)

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Question 53

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Short-run prices should at least recover ________.

Market research can be an effective tool in understanding the features customers value.

Answer the following questions using the information below: Weather Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Weather Inc.'s policy to add a 30% markup to full costs. -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: $\begin{array} { l r } \text { Direct materials } & \$ 400 \\\text { Direct manufacturing labor } & 120 \\\text { Variable manufacturing support } & 60 \\\text { Fixed manufacturing support } & 200 \\\quad \text { Total manufacturing costs } & 780 \\\text { Markup (20\% of total manufacturing costs) } & 156 \\\text { Estimated selling price } & \$ 936\end{array}$ For Zolas' Heaters,what is the minimum acceptable price of this one-time-only special order?

One market-based pricing method is called the time and materials method.

When target costing and target pricing are used together ________.

Sail Safe currently sells motor boats for $60,000.It has costs of $46,500.A competitor is bringing a new motor boat to the market that will sell for $55,000.Management believes it must lower the price to $55,000 to compete in the market for motor boats.The marketing department believes that the new price will cause sales to increase by 12.5%,even with a new competitor in the market.Sail Safe's sales are currently 2,000 motor boats per year.3 Required: a.What is the target cost for the new target price if target operating income is 20% of sales? b.What is the change in operating income if marketing department is correct and only the sales price is changed? c.What is the target cost if the company wants to maintain its same income level,and marketing department is correct?

In case of pricing for special orders,managers include all future costs,variable costs,and costs that are fixed in the short run.

A price-bidding decision for a one-time-only special order includes an analysis of all ________.

An understanding of life-cycle costs can lead to ________.

Which of the following best describes reverse engineering?

Answer the following questions using the information below: Bright Inc., manufactures table lamps and is considering raising the price by $30 a unit for the coming year. With a $30 price increase, demand is expected to fall by 2,000 units. $\begin{array}{lrr}&\text { Currently }&\text { Projected }\\\text { Demand } & 20,000 \text { units } & 18,000 \text { units } \\\text { Selling price } & \$ 150 & \$ 180 \\\text { Variable costs per unit } & \$ 100 & \$ 100\end{array}$ -Bright Inc.,has a capacity to produce 25,000 units.Due to an increase in the electricity costs,there is a sudden spike in demand by 2,000 units.If the company adopts peak-load pricing policy and charges a premium of 30% over the current sales price,what is the total contribution on the sale of additional units?

In cost-plus pricing,the markup component ________.

Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price.

Answer the following questions using the information below: After conducting a market research study, Ed 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 20,000. Ed has target operating income of 20% of sales. -What is the target operating income?

Which of the following can be used to arrive at the target rate of return on investment?

A full-cost formula for pricing does not require the management accountant to perform a detailed analysis of cost-behavior patterns.

Answer the following questions using the information below: Judith Vending Company has invested $800,000 in a plant to make vending machines. The target operating income desired from the plant is $120,000 annually. The company plans annual sales of 1,200 vending machines at a selling price of $1,000 each. -What is the target rate of return on investment for Judith Vending Company?

Life-cycle costing is the name given to ________.