Exam 5: Relevant Information and Decision-Making: Marketing Decisions

Denison Corporation has been producing and selling 60,000 skillets a year. The company has the capacity to produce 75,000 skillets with its present facilities. The following information is also available: Selling price per unit \ 44 Variable costs per unit: Manufacturing 19 Selling and Adminis trative 15 Fixed costs in total: Manufacturing \ 220,000 Selling and A dminis trative 20,000 is the variable cost per unit for a skillet using the contribution approach.

In perfect competition, all competing firms sell similar products at similar prices.

A company will bid near the minimum sales price to establish a presence in new markets or with a new customer.

Number of times the average inventory is sold per year

is the predicted future costs and revenues that will differ among alternative courses of action.

Sparrow Corporation provided the following information regarding its one and only product -tables: Selling price per unit \ 50 Direct materials used 150,000 Direct labor 225,000 Variable factory overhead 140,000 Variable s elling and administrative 60,000 expenses Fixed factory overhead 330,000 Fixed selling and adminis trative expenses 70,000 Units produced and sold 20,000 Assuming there is excess capacity, the effect of accepting a special order for 1,000 units at a price of $40)00 per table is that:

Market focus group studies and surveys may be used by a firm to determine the price of a product or service.

Historical data might have a direct bearing on a decision.

The most recent income statement for the Strongsville Branch of the July Company is presented below. Sales \ 57,000 Variable costs Contribution margin \ 25,500 Fixed costs: Avoidable 13,500 Unavoidable Operating income \ 16,000 The July Company is thinking of eliminating the Strongsville Branch because it is showing a loss. If the Strongsville Branch is eliminated, July's operating income will:

In imperfect competition, marginal revenue usually increases as volume increases.

A target cost is set after creating a product.

Greek Company produces and sells 22,000 units of a single product. Costs associated with this level of production are as follows: Direct materials \ 15 Direct manuf acturing labor 45 Variable manuf acturing overhead 25 Fixed manufacturing overhead 30 Total The product normally sells for $145 per unit. Greek Company has received a special order to sell 2,000 units at $100 per unit. Greek Company has excess production capacity. Required: Compute the amount by which the operating income of Greek Company would change if the order were accepted.

The marketing department at Hi- Fi Electronics has determined that there is a demand for a new small appliance which would likely sell for $36. Hi- Fi Electronics currently produces a similar product for $38, using a full cost approach. Hi- Fi Electronics would like to earn a 20% profit on the new appliance. The target cost of the new appliance is:

The difference between the gross margin and the market price is the target cost for a new product.

Precise but irrelevant information may still be useful for decision making.

Nutty Manufacturing is considering producing a new product. Nutty Manufacturing expects that it will sell 2,000 units over the product's expected 4- year life. Variable production costs and variable selling costs are estimated at $42 and $16 per unit, respectively. Annual fixed production and fixed selling costs are estimated at $15,000 and $5,000, respectively. Research and development costs are estimated at $184,000. is the total cost over the product life cycle.

At some point, marginal costs begin to rise with increases in production because facilities become inefficient.

Prices based on variable costs represent a contribution approach to pricing.

Charging different prices to different customers for the same product or service

Operating at capacity indicates that the company does not want to produce more products.