Exam 8: Pricing

Sales volume plays a large role in determining per unit costs in the cost-plus pricing approach.

Bond Co. is using the target cost approach on a new product. Information gathered so far reveals: Expected annual sales 400,000 units Desired profit per unit \ 0.35 Target cost \ 168,000 What is the target selling price per unit?

Use the following information for questions The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The operation has the capacity to produce 200,000 gallons of milk a year. Last year's operating results were as follows: Sales (160,000) gallons \ 500,000 Variable costs 312,000 Contribution margin 188,000 Fixed costs 100,000 Net Income \ 88,000 -Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division. The minimum price that will increase the Dairy Division's profit is

Use the following information for questions 103 and 104. The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.02 a can. -Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept?

Use the following information for questions Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. Consultants' wages \ 90,000 Fringe benefits \ 22,500 Related overhead \ 17,500 Supply clerk's wages \ 18,000 Fringe benefits \ 4,000 Related overhead \ 20,000 Profit margin per hour \ 20 Profit margin on materials 15\% Total estimated consulting hours 5,000 Total estimated material costs \ 168,000 -The labor rate per hour is

Use the following information for questions Custom Shoes Co. has gathered the following information concerning one model of shoe: Variable manufacturing costs \ 40,000 Variable selling and administrative costs \ 20,000 Fixed manufacturing costs \ 160,000 Fixed selling and administrative costs \ 120,000 Investment \ 1,700,000 ROl 30\% Planned production and sales 5,000 pairs -What is the total cost per pair of shoes?

Target cost is comprised of

Because absorption cost data already exists in general ledger accounts, it is cost effective to use it for pricing.

Use the following information for questions The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: Capacity 200,000 board feet Price per board foot \ 2.50 Variable production cost per bd. ft. \ 1.25 Variable selling cost per bd. ft. \ 0.50 Construction Division: Board feet needed 60,000 Outside price paid per bd. ft. \ 2.00 If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs. -If current outside sales are 150,000 board feet, what is the minimum transfer price that the Lumber Division could accept?

Use the following information for questions Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. Consultants' wages \ 90,000 Fringe benefits \ 22,500 Related overhead \ 17,500 Supply clerk's wages \ 18,000 Fringe benefits \ 4,000 Related overhead \ 20,000 Profit margin per hour \ 20 Profit margin on materials 15\% Total estimated consulting hours 5,000 Total estimated material costs \ 168,000 -The material loading charge is

Use the following information for questions Brislin Products has a new product going on the market next year. The following data are projections for production and sales: Variable costs \ 250,000 Fixed costs \ 450,000 Rol 14\% Investment \ 2,000,000 Sales 200,000 units -What is the target selling price per unit?

The cost-plus pricing approach's major advantage is

The labor charge per hour in time-and-material pricing includes all of the following except

Lawrence Legal Services recently billed a customer $690. Labor hours were 6 and the cost of the materials used was $150. If the company's hourly labor rate was $75, what material loading charge was used?

The general formula for the minimum transfer price is: minimum transfer price equals

Companies that sell products whose prices are set by market forces are called

Use the following information for questions Tuttle Motorcycles Inc. manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division. It has been decided that the Engine Division will sell 20,000 units to the Production Division at $1,050 a unit. The Engine Division, currently operating at capacity, has a unit sales price of $2,550 and unit variable costs and fixed costs of $1,050 and $750, respectively. The Production Division is currently paying $2,400 per unit to an outside supplier. $90 per unit can be saved on internal sales from reduced selling expenses. -What is the increase/decrease in overall company profits if this transfer takes place?

The market-based transfer price approach produces a higher total contribution margin to the company than the cost-based approach.

In the variable-cost approach, the markup percentage covers the

The absorption-cost approach is used by most companies for all of the following reasons except that