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

The contribution margin approach to pricing is always the best method.

Scarce resources include labor hours.

A scarce resource limits the production or sale of a product or service.

Thrilling Industries budgeted the following costs for the production of its one and only product, tennis balls, for the next fiscal year: Materials \ 35,000 Labor 25,000 Overhead: Variable 30,000 Fixed 15,000 Selling and administrative: Variable 7,500 Fixed Total costs \ 125,000 Thrilling Industries has a target profit of $30,000. The average target markup for setting prices as a percentage of prime costs would be:

Heating and air conditioning are examples of common costs of all departments in a retail store.

Groucho Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.80 per unit and fixed costs are $0.50 per unit. Current monthly sales are 184,500 units. Super Company has contacted Groucho Company about purchasing 20,000 units at $2.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. If Groucho Company decides to accept the special order, Groucho Company's costs will increase by:

is (are) defined as any method for making a choice.

Pricing is not discriminatory if it reflects a cost differential incurred in providing the good or service.

The additional revenue resulting from the sale of an additional unit

Prices based on variable costs

The most recent income statement for the Parma Branch of the Dinero Company is presented below. Sales \ 57,000 Variable costs Contribution margin \ 25,500 Fixed costs: Avoidable 13,500 Unavoidable 18,000 Operating income \1 6,000 If the Parma Branch is eliminated and the space is rented for $24,000, operating income will be:

If a small price increase causes large volume declines, demand is highly inelastic.

Watson Corporation manufactures two products, XX and YY. The following information was gathered: XX YY Selling price p er unit \ 47.00 \ 26.00 V ariable cost per unit 42.00 22.00 Total fixed costs \ 18,000 Assume Watson Corporation could produce and sell any mix of product XX and YY at full capacity. If product XX takes 50% longer to manufacture as product YY and only 120,000 hours of plant capacity are available, it is best for Watson to produce:

Small price increases causes large volume declines

King Industries budgeted the following costs for the production of its one and only product, tennis balls, for the next fiscal year: Materials \ 35,000 Labor 25,000 Overhead: Variable 30,000 Fixed 15,000 Selling and administrative: Variable 7,500 Fixed Total costs \ 125,000 King Industries has a target profit of $30,000. The average target markup for setting prices as a percentage of variable production costs would be:

A tool for making cost a key focus throughout the life of a product

Relevant information is the historical costs and revenues that differ as a result of alternative courses of actions.

Additional sales will be profitable if:

Managers usually can compute the change in total costs by multiplying any change in volume by the full unit cost.

The additional cost resulting from producing and selling one additional unit