Exam 14: Strategic Management of Costs

Price elasticity of demand:

The Jupiter Division of Space, Inc. produces dilithium crystals. One-third of its output is sold to the Antari Division, and the remainder is sold externally. Jupiter's estimated sales and cost data for the coming year are: Antari Division External Sales Units 12,500 25,000 Sales \ 18,750 \ 50,000 Variable costs 12,500 25,000 Fixed costs 3,750 7,500 Assume that Jupiter cannot sell any additional crystals externally. If the Antari Division has an opportunity to buy from an outside supplier at $1.40 per crystal and Jupiter refuses to meet this price, the company as a whole will be:

If a product has an external market and divisions are treated as profit centres, cost-based transfer prices can often lead to suboptimal decisions.

In Canada, predatory pricing occurs when:

Profit-maximizing price occurs when marginal profits equal marginal revenues.

The internet is likely to makes prices more inelastic because substitutes are more easily discovered.

The "death spiral" may be a problem when managers use:

Which of the following formulas calculates price elasticity of demand?

The price does not need to cover costs for what kinds of organizations?

Division A produces a component for Hielkema Company's main product - automobiles. The division operates as a profit centre. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A: Direct material \ 30 per unit Direct labour \ 25 per unit Variable overhead \ 10 per unit Fixed overhead (based on a capacity of 5,000 units) \ 6 per unit The minimum price at which A would sell components internally is:

When managers take advantage of an unusual event by charging prices that consumers believe are too high, they are practicing:

Which of the following is most likely to be the highest transfer price?

An advantage of using negotiated transfer prices is:

Transfer prices are used to value all of the following except:

Which of the following is a formal method for incorporating demand into prices?

Prices that are calculated using elasticities:

The practice of charging higher prices for products or services when they are first introduced is known as:

Anti-dumping tariffs in Canada are set so that:

The National Division of Roboto Company is buying 10,000 widgets from an outside supplier at $30 per unit. Roboto's Overseas Division, which is producing and selling at full capacity (12,000 units), has the following sales and cost structure: Sales price per unit \ 45.00 Variable cost per unit 22.50 Fixed cost (at capacity) per unit 15.00 If the Overseas Division meets the outside supplier's price and sells the 10,000 widgets to National, the effect on overall company profits will be:

Managers determine what a customer is willing to pay for a product or service under which one of these pricing methods??