Exam 13: Pricing Decisions and Cost Management

Greentree Incorporated manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $120 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Greentree's policy to add a 30% markup to full costs. a.Greentree Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest price Greentree should bid on this one-time-only special order? b.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Greentree Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Greentree should bid on this long-term order?

Grounded Coffee Products manufactures coffee tables. Grounded Coffee Products has a policy of adding a 10% markup to full costs and currently has excess capacity. The following information pertains to the company's normal operations per month: Grounded Coffee Products is approached by an overseas customer to fulfill a one-time-only special order for 5000 units. All cost relationships remain the same except for a one-time setup charge of $60,000. No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid per unit on this one-time-only special order? (Round your final answer to the nearest cent.)

A product costs $100 to manufacture and $40 to market and $20 to distribute (ship to customers.) R&D costs are allocated at $30 per unit. Based on a targeted rate of return, manager uses a mark-up of 60%. What is the markup component based on a Cost-Plus pricing approach?

Developing a product that satisfies the need of the potential customers is the first step in implementing target pricing and target costing.

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 $14,000 in setup costs. -The new transformer incurred $50,000 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 5100 transformers each. -Indirect manufacturing costs charged to each run are $55,000. -Destination charges for each transformer average $4.00. -Customer service expenses average $0.20 per transformer. -The transformers are selling for $40 the first year and will increase by $2 each year thereafter. -Sales units equal production units each year. What are estimated life-cycle revenues?

Which of the following statements about pricing is true?

Cost allocation data could be a valuable input to encourage design of products that are simpler to manufacture and less costly to service.

To minimize the chances of violating pricing laws, a company should ________.

Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $250 per air conditioner, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Cool Air Inc.'s policy to add a 30% markup to full costs. A medium sized motel chain is currently expanding and has decided to create more rooms and air condition all of its rooms, which are currently not air conditioned. Cool Air Inc. is invited to submit a bid to the motel chain. What per unit price will Cool Air Inc. most likely bid for this special order of 200 units? Assume that the price is being fixed for a long-term commitment.

When target costing and target pricing are used together ________.

Which of the following is true of value engineering?

Supervision costs can have both value-added and non-value-added components.

Crimpson Company has invested $2,200,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $306,000 annually. The company plans annual sales of 7700 juicer machines at a selling price of $300 each. What is the cost base of each juicer machine for Crimpson Company?

Longball Company manufactures basketball backboards. The following information pertains to the company's normal operations per month: Required: a.For long-run pricing, what is the full-cost base per unit? b.Longball Company is approached by an overseas city to fulfill a one-time-only special order for 1,000 units. All cost relationships remain the same except for an additional one-time setup charge of $40,000. No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid per unit on this one-time-only special order?

Crimpson Company has invested $2,200,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $303,000 annually. The company plans annual sales of 7000 juicer machines at a selling price of $500 each. What is the markup percentage as a percentage of cost for Crimpson Company?

Which of the following is not a step of value-engineering?

The Maize Eagles are evaluating ticket prices for its basketball games. Studies show that Friday and Saturday night games average more than twice the number of fans compared to other days. The following information pertains to the stadium's normal operations per season: The stadium is open for 4 operating hours on each day a game is played. All employees work by the hour except for the administrators. A maximum of one game is played per day and each fan has only one ticket per game. The stadium authority wants to charge more for games on Friday and Saturday. What is the minimum price that should be charged for peak attendance nights?

Bouchard Company manufactures a product that currently has a full cost of $700. Its target operating income per unit is $80 and management's budgets assume that same target operating income per unit for the foreseeable future. To stay competitive, Bouchard management believes it must cut its price by 25%. What will be its new target cost?

Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Wilde has an annual target operating income of $920,000. The markup percentage for setting prices as a percentage of the variable cost of the product is ________.

Fairhaven Composite Poles manufactures fishing poles that have a price of $125.00. It has costs of $90. A competitor is introducing a new fishing pole that will sell for $115.00. Management believes it must lower the price to $110.00 to compete in the highly cost-conscious fishing pole market. Marketing department believes that the new price will allow Carbon to maintain the current sales level of 200,000 poles per year. Required: a.What is the target cost for the new price if target operating income is 25% of sales? b.What is the change in operating income for the year if only the selling price is changed and costs remain the same? c.What is the target cost per unit if the selling price is reduced to $110.00 and the company wants to maintain its same income level?