Exam 13: Pricing Decisions and Cost Management

Which of the following would make life-cycle budgeting particularly important to implement?

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

Knowledge Transfer Associates is in the process of evaluating its new client services for the business systems consulting division. -Server Planning, a new service, incurred $330,000 in development costs. -The direct costs of providing the service, which is all labor, averages $40 per hour. -Other costs for this service are estimated at $340,000 per year. -The current program for server planning is expected to last for two years. At that time, expected new operating systems are likely to make the service non viable. -Customer service expenses average $350 per client, with each job lasting an average of 40 hours. The current staff expects to bill 15,000 hours for each of the two years the program is in effect. Billing averages $100 per hour. What are the estimated life-cycle revenues?

Relevant costs for target pricing are ________.

All costs are locked in at the design stage itself.

Jamal, Kareem, Rashid and Associates are in the process of evaluating its new client services for the business consulting division. -Estate Planning, a new service, incurred $180,000 in development costs and employee training. -The direct costs of providing this service, which is all labor, averages $30 per hour. -Other costs for this service are estimated at $450,000 per year. -The current program for estate planning is expected to last for two years. At that time, a new law will be in place that will require new operating guidelines for the tax consulting. -Customer service expenses average $104 per client, with each job lasting an average of 500 hours. The current staff expects to bill 50,000 hours for each of the two years the program is in effect. Billing averages $46 per hour. What is estimated life-cycle operating income for the first year?

Expo Manufacturing Inc., is in the process of evaluating a new product using the following information: -A new transformer has three production runs each year, each with $15,000 in setup costs. -The new transformer incurred $45,000 in development costs and is expected to be produced over the next three years. -Direct costs of producing the transformers are $55,000 per run of 5000 transformers each. -Indirect manufacturing costs charged to each run are $45,000. -Destination charges for each transformer average $2.00. -Customer service expenses average $0.40 per transformer. -The transformers are selling for $20 the first year and will increase by $4 each year thereafter. -Sales units equal production units each year. What is the estimated life-cycle operating income for the first year?

In a noncompetitive environment, the key factor affecting pricing decisions is the ________.

After conducting a market research study, Magnificent 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 $270. The annual target sales volume for interior doors is 29,000. Magnificent has target operating income of 40% of sales. What are target sales revenues?

Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $270 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's policy to add a 60% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Jack's Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jack's Back Porch most likely bid on this long-term order?